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Strategic Flexibility and Exchange Rate Uncertainty

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  • Corinne Krupp
  • Carl Davidson

Abstract

The authors examine the implications of exchange rate swings in interntional markets, paying particular attention to the importance of firm flexibility. They use the term flexibility to refer to the ease with which firms can respond to exchange rate swings. There are two kinds of flexibility that the authors consider: (1) flexibility in the timing of output and sales allocation decisions relative to the exchange rate realization and (2) flexibility in the number of sales outlets available to the firms. They show that differing degrees of flexibility have important implications for equilibrium prices (i.e., exchange rate pass-through), market shares, and profits.

Suggested Citation

  • Corinne Krupp & Carl Davidson, 1996. "Strategic Flexibility and Exchange Rate Uncertainty," Canadian Journal of Economics, Canadian Economics Association, vol. 29(2), pages 436-456, May.
    • Handle: RePEc:cje:issued:v:29:y:1996:i:2:p:436-56
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    Cited by:

    1. Guneratne Banda Wickremasinghe & Param Silvapulle, 2004. "Role of Exchange Rate Volatility in Exchange Rate Pass-Through to Import Prices: Some Evidence from Japan," International Finance 0406006, University Library of Munich, Germany.
    2. Mahagaonkar, Prashanth & Schweickert, Rainer & Chavali, Aditya S., 2009. "Sectoral R&D intensity and exchange rate volatility: a panel study for OECD countries," Kiel Working Papers 1531, Kiel Institute for the World Economy (IfW Kiel).

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