Pass-Through of Exchange Rates and Purchasing Power Parity
AbstractIn this paper we develop and test two hypotheses about purchasing power parity (PPP) derived from the pricing behavior of profit- maximizing, exporting firms. The first is that changes in the price of traded goods relative to domestic substitutes, due to partial pass- through of exchange rates, will affect the PPP relation. The second is that PPP should hold on forward rather than spot exchange rates, due to hedging by firms. Using quarterly data for the United States, Canada, France, Germany, Japan and the United Kingdom, we find considerable support for the first but not the second hypothesis.
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Bibliographic InfoPaper provided by Tasmania - Department of Economics in its series Papers with number 1994-06.
Length: 32 pages
Date of creation: 1994
Date of revision:
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Web page: http://www.utas.edu.au/economics-finance/
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Other versions of this item:
- Feenstra, Robert C. & Kendall, Jon D., 1997. "Pass-through of exchange rates and purchasing power parity," Journal of International Economics, Elsevier, vol. 43(1-2), pages 237-261, August.
- Robert C. Feenstra & Jon D. Kendall, 1994. "Passthrough of Exchange Rates and Purchasing Power Parity," NBER Working Papers 4842, National Bureau of Economic Research, Inc.
- F31 - International Economics - - International Finance - - - Foreign Exchange
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