Revisiting Perverse Effects on Exchange Rate Pass-Through
The effects of a change in the exchange rate on product prices are investigated using a static international duopoly model without product differentiation. A general condition is derived for perverse exchange rate pass-through assuming decreasing marginal costs for firms in two trading countries. The result is clarified on the basis of a new diagram for determining equilibrium supplies in the two countries.
Volume (Year): 4 (2005)
Issue (Month): 1 (April)
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