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Exchange Rate Pass-Through and Market Response: The Case of the US Steel Market

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Author Info
MoonJoong Tcha (UWA Business School, The University of Western Australia)
Jae H. Kim (Department of Econometrics and Business Statistics, Monash University)

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Abstract

The relationship between real exchange rate pass-through (ERPT) for market price and an individual country’s price was theoretically formulated and empirically explored, using steel products data in the US market, with special reference to two major steel exporting countries, Japan and Korea. It was found that the direction of market ERPT can be different from that of individual ERPT, due to strategic interactions among producers and different parameters. Vector error correction models and impulse response analysis were used with the statistical inference based on the bootstrap-after-bootstrap of Kilian (1998) for short-run, and the fully modified estimation of Phillips and Hansen (1990) was used for long-run. Empirical results indicate that market ERPT against Japan-US exchange rates is different from that against Korea-US exchange rates. The framework developed in this study indicates that this phenomenon is attributed to either the two countries having different ERPTs, or the other countries’ pricing strategies against the two countries ERPT being different.

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Publisher Info
Paper provided by The University of Western Australia, Department of Economics in its series Economics Discussion / Working Papers with number 03-02.

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Length: 31 pages
Date of creation: 2003
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Handle: RePEc:uwa:wpaper:03-02

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Related research
Keywords: Market exchange rate pass-through; individual exchange rate pass-through; elasticities;

Find related papers by JEL classification:
F0 - International Economics - - General
F1 - International Economics - - Trade
L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

References listed on IDEAS
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  1. Gross, Dominique M. & Schmitt, Nicolas, 2000. "Exchange rate pass-through and dynamic oligopoly: an empirical investigation," Journal of International Economics, Elsevier, vol. 52(1), pages 89-112, October. [Downloadable!] (restricted)
    Other versions:
  2. Lutz Kilian, 1998. "Small-Sample Confidence Intervals For Impulse Response Functions," The Review of Economics and Statistics, MIT Press, vol. 80(2), pages 218-230, May. [Downloadable!] (restricted)
  3. Klemperer, Paul, 1995. "Competition When Consumers Have Switching Costs: An Overview with Applications to Industrial Organization, Macroeconomics, and International Trade," Review of Economic Studies, Blackwell Publishing, vol. 62(4), pages 515-39, October. [Downloadable!] (restricted)
  4. Knetter, Michael M, 1989. "Price Discrimination by U.S. and German Exporters," American Economic Review, American Economic Association, vol. 79(1), pages 198-210, March. [Downloadable!] (restricted)
  5. Froot, Kenneth A & Klemperer, Paul D, 1989. "Exchange Rate Pass-Through When Market Share Matters," American Economic Review, American Economic Association, vol. 79(4), pages 637-54, September. [Downloadable!] (restricted)
    Other versions:
  6. Tivig, Thusnelda, 1996. "Exchange rate pass-through in two-period duopoly," International Journal of Industrial Organization, Elsevier, vol. 14(5), pages 631-645, July. [Downloadable!] (restricted)
  7. Feenstra, Robert C., 1989. "Symmetric pass-through of tariffs and exchange rates under imperfect competition: An empirical test," Journal of International Economics, Elsevier, vol. 27(1-2), pages 25-45, August. [Downloadable!] (restricted)
    Other versions:
  8. Adolfson, Malin, 2001. "Export price responses to exogenous exchange rate movements," Economics Letters, Elsevier, vol. 71(1), pages 91-96, April. [Downloadable!] (restricted)
  9. Pinelopi Koujianou Goldberg & Michael M. Knetter, 1997. "Goods Prices and Exchange Rates: What Have We Learned?," Journal of Economic Literature, American Economic Association, vol. 35(3), pages 1243-1272, September. [Downloadable!] (restricted)
    Other versions:
  10. Feenstra, Robert C. & Gagnon, Joseph E. & Knetter, Michael M., 1996. "Market share and exchange rate pass-through in world automobile trade," Journal of International Economics, Elsevier, vol. 40(1-2), pages 187-207, February. [Downloadable!] (restricted)
    Other versions:
  11. Sven W. Arndt & J. David Richardson, 1988. "Real-Financial Linkages Among Open Economies," NBER Working Papers 2230, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  12. Varangis, Panayotis N. & Duncan, Ronald C., 1993. "Exchange rate pass through : An application to US and Japanese steel prices," Resources Policy, Elsevier, vol. 19(1), pages 30-39, March. [Downloadable!] (restricted)
  13. Peter C.B. Phillips & Bruce E. Hansen, 1988. "Statistical Inference in Instrumental Variables," Cowles Foundation Discussion Papers 869R, Cowles Foundation, Yale University, revised Apr 1989. [Downloadable!]
  14. Thomas Klitgaard, 1999. "Exchange rates and profit margins: the case of Japanese exporters," Economic Policy Review, Federal Reserve Bank of New York, issue Apr, pages 41-54. [Downloadable!]
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