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

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  • Brissimis, Sophocles N.
  • Kosma, Theodora

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. JEL Classification: E43, E44, E58

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Bibliographic Info

Paper provided by European Central Bank in its series Working Paper Series with number 0531.

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Date of creation: Oct 2005
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Handle: RePEc:ecb:ecbwps:20050531

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Keywords: euro exchange rate; Exchange Rate Pass-Through; innovative activity; market power; multivariate cointegration;

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Citations

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Cited by:
  1. Kerstin Stahn, 2007. "Has the Export Pricing Behaviour of German Enterprises Changed? Empirical Evidence from German Sectoral Export Prices," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), Justus-Liebig University Giessen, Department of Statistics and Economics, vol. 227(3), pages 295-329, June.
  2. Stahn, Kerstin, 2009. "Changes in import pricing behaviour: the case of Germany," Discussion Paper Series 1: Economic Studies 2009,14, Deutsche Bundesbank, Research Centre.
  3. Kerstin Stahn, 2011. "Changes in Import Pricing Behaviour: Evidence for Germany," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), Justus-Liebig University Giessen, Department of Statistics and Economics, vol. 231(4), pages 522-545, August.
  4. Alan Ahearne & Jürgen von Hagen, 2006. "European perspectives on global imbalances," Working Papers 50, Bruegel.

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