The Response of Domestic Prices to Expected Exchange Rates
This article examines the recent U.S. price experience in response to the actual and anticipated rise and fall of the dollar, and tests for determinants of the observed price effects. An index of real exchange-rate expectations is developed and used to explore its role in determining domestic producer prices. Actual and expected future real exchange rates are seen to have opposite impacts on domestic price determination at the industry level. Further, the industry-specific characteristics interact asymmetrically with actual and expected real exchange-rate changes. Copyright 1992 by University of Chicago Press.