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Exchange Rate Volatility, Pricing to Market and Trade Smoothing

Author

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  • Hamid Faruqee
  • Peter B. Clark

Abstract

This paper investigates the consequences of exchange rate volatility on the variability of export prices and quantities in the presence of market segmentation and pricing to market. Firms stabilize destination prices through systematic price discrimination, limiting the degree of exchange rate pass-through. Consequently, the variability of exchange rates is not fully translated into prices and quantities at the point of destination. Empirical estimates using aggregate price data for the G-7 industrial countries show incomplete pass-through in variances, with considerable variation among these countries. U.S. industry specific data also indicate incomplete pass-through in most cases, with considerable variation across industries.

Suggested Citation

  • Hamid Faruqee & Peter B. Clark, 1997. "Exchange Rate Volatility, Pricing to Market and Trade Smoothing," IMF Working Papers 97/126, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:97/126
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    Cited by:

    1. Claudia Stirböck & Herbert Buscher, 2000. "Exchange rate volatility effects on labour markets," Intereconomics: Review of European Economic Policy, Springer;German National Library of Economics;Centre for European Policy Studies (CEPS), vol. 35(1), pages 9-22, January.
    2. Caroline Schmidt, 2006. "International transmission effects of monetary policy shocks: can asymmetric price setting explain the stylized facts?," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 11(3), pages 205-218.
    3. Buscher, Herbert & Mueller, Claudia, 1999. "Exchange Rate Volatility Effects on the German Labour Market: A Survey of Recent Results and Extensions," IZA Discussion Papers 37, Institute for the Study of Labor (IZA).

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