Advanced Search
MyIDEAS: Login

Market Power and Exchange Rate Adjustment in the Presence of Quotas

Contents:

Author Info

  • Joshua Aizenman

Abstract

This paper investigates the dependency of the adjustment of prices, exchange rates, and production on the nature of the trade regime. We contrast the adjustment between a quota and a tariff regime for a 'semi-small' economy characterized by monopolistic competitive market structure and short-run nominal contracts under a floating exchange rate regime. Among other issues we focus on the factors determining the behavior of the quota rent and the 'pass- through' of exchange rate adjustment to the domestic prices of importable goods. We demonstrate that the 'pass-through ratio' (measuring the elasticity of the domestic price of importable goods with respect to the exchange rate) is determined by both the commercial policy and by the market power of the various producers. It tends to be higher in a tariff regime because the endogenous adjustment of the quota rent mitigates the 'pass-through'. We also show that the adjustment of the exchange rate tends to be larger in the quota regime than in the tariff regime. In the tariff regime we observe a larger switch of domestic demand relative to the quota regime, and a corresponding smaller exchange rate adjustment. In the quota regime we observe adjustment of the quota rent such as to keep the net domestic demand for foreign goods intact. As a result, the relative price (of the domestic good to the foreign good) facing the foreign consumer adjusts more in the quota regime than in the tariff regime. At the same time the relative price facing domestic consumers in the quota regime adjusts by less than in the tariff regime.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.nber.org/papers/w2370.pdf
Download Restriction: no

Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 2370.

as in new window
Length:
Date of creation: Aug 1987
Date of revision:
Publication status: published as Journal of International Economics, Vol. 27, pp. 265-282, (1989).
Handle: RePEc:nbr:nberwo:2370

Note: ITI IFM
Contact details of provider:
Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Phone: 617-868-3900
Email:
Web page: http://www.nber.org
More information through EDIRC

Related research

Keywords:

Other versions of this item:

References

References listed on IDEAS
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.:
as in new window
  1. Gray, Jo Anna, 1976. "Wage indexation: A macroeconomic approach," Journal of Monetary Economics, Elsevier, vol. 2(2), pages 221-235, April.
  2. Flood, Robert P & Hodrick, Robert J, 1985. "Optimal Price and Inventory Adjustment in an Open-Economy Model of the Business Cycle," The Quarterly Journal of Economics, MIT Press, vol. 100(5), pages 887-914, Supp..
  3. Robert P. Flood & Nancy Peregrim Marion, 1980. "The Transmission of Disturbances under Alternative Exchange-Rate Regimeswith Optimal Indexing," NBER Working Papers 0500, National Bureau of Economic Research, Inc.
  4. Dornbusch, Rudiger, 1987. "Exchange Rates and Prices," American Economic Review, American Economic Association, vol. 77(1), pages 93-106, March.
  5. J. David Richardson, 1983. "International trade policies in a world of industrial change," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 267-320.
  6. Fischer, Stanley, 1977. "Wage indexation and macroeconomics stability," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 5(1), pages 107-147, January.
  7. Rotemberg, Julio J, 1982. "Sticky Prices in the United States," Journal of Political Economy, University of Chicago Press, vol. 90(6), pages 1187-1211, December.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Webber, A., 1999. "Dynamic and Long Run Responses of Import Prices to the Exchange Rate in the Asia-Pacific," Economics Working Papers WP99-11, School of Economics, University of Wollongong, NSW, Australia.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:2370. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.