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Exchange rate pass-through and the role of international distribution channels

Author

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  • Ramarao Desiraju
  • Milind M. Shrikhande

Abstract

Manufacturers selling in foreign markets often do not completely pass on the effects of fluctuations in exchange rates to the prices of their products. Our paper addresses this puzzle and studies the effects of the international distribution channel on exchange rate pass-through. We develop an exchange rate pass-through model that takes into account the role of an intermediary between a domestic manufacturer and its consumers in a foreign market. We find that the magnitude of the pass-through depends on the presence of an incentive problem in the distribution channel. When there is no incentive problem, pass-through is complete; however, when there is an incentive problem, pass-through depends on various characteristics of the intermediary and the market setting. Our analysis underscores the importance of considering the role of international distribution channels and suggests directions for further work on exchange rate pass-through.

Suggested Citation

  • Ramarao Desiraju & Milind M. Shrikhande, 1996. "Exchange rate pass-through and the role of international distribution channels," FRB Atlanta Working Paper 96-22, Federal Reserve Bank of Atlanta.
    • Handle: RePEc:fip:fedawp:96-22
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    File URL: https://www.atlantafed.org/-/media/documents/research/publications/wp/1996/wp9622.pdf
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    Cited by:

    1. Rebecca Hellerstein, 2004. "Who Bears the Cost of a Change in the Exchange Rate?," Econometric Society 2004 North American Summer Meetings 589, Econometric Society.

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