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Market power, innovative activity and exchange rate pass-through in the euro area

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Author Info
Sophocles N. Brissimis () (Bank of Greece and University of Piraeus. Address: 21 E.Venizelos Ave., 10250 Athens, Greece.)
Theodora S. Kosma () (Corresponding author: Athens University of Economics and Business (AUEB), 76 Patission Street, 10434 Athens, Greece.)

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Abstract

This paper examines exchange rate pass-through in the euro area by accounting for the impact of exchange rate changes on exporting firms’ market power, cost structure and competitiveness. An international oligopoly model where exporting firms simultaneously decide on their pricing and innovation strategies is used as the basis for the econometric analysis. The estimations are carried out on data for manufacturing imports of three large euro area countries (Germany, France, Netherlands) from three major non-euro area import suppliers (US, Japan, UK). The results show that exporting firms’ price and innovation decisions in each source country are jointly determined and that total pass-through to euro area import prices is low. There are also indications that other factors, such as interactions with domestic producers, may be important for the determination of pass-through. Finally, euro area import prices are found to be sticky in local currency in the short run.

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Paper provided by European Central Bank in its series Working Paper Series with number 531.

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Length: 50 pages
Date of creation: Oct 2005
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Handle: RePEc:ecb:ecbwps:20050531

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Related research
Keywords: Exchange rate pass-through market power innovative activity multivariate cointegration euro exchange rate.

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Find related papers by JEL classification:
C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models
F39 - International Economics - - International Finance - - - Other
L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
O31 - Economic Development, Technological Change, and Growth - - Technological Change - - - Innovation and Invention: Processes and Incentives

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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Luis J. Álvarez & Emmanuel Dhyne & Marco M. Hoeberichts & Claudia Kwapil & Hervé Le Bihan & Patrick Lünnemann & Roberto Sabbatini & Fernando Martins & Harald Stahl & Philip Vermeulen & Jouko Vilmun, 2005. "Sticky prices in the euro area - a summary of new micro evidence," Working Paper Series 563, European Central Bank. [Downloadable!]
    Other versions:
  2. António Afonso, 2005. "Ricardian fiscal regimes in the European Union," Working Paper Series 558, European Central Bank. [Downloadable!]
    Other versions:
  3. Andreas Schabert, 2005. "Discretionary policy, multiple equilibria, and monetary instruments," Working Paper Series 533, European Central Bank. [Downloadable!]
    Other versions:
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