Exchange rate shocks and the speed of trade price adjustment

Jimmy RAN, R. BALVERS

Research output: Journal PublicationsJournal Article (refereed)

2 Citations (Scopus)

Abstract

A quantity adjustment cost model is developed in the context of international trade along the lines proposed by Krugman (1987). The model implies that prices adjust dynamically to exchange rate fluctuations. The price adjustment speed is determined as a function of foreign demand responsiveness, the appropriate discount rate, and an adjustment cost parameter. Pass-through is incomplete and increases over time and with the speed of price adjustment A preliminary empirical analysis finds that the speed of price adjustment from the time series by industry and then in a cross-sectional repression tentatively relates the obtained adjustment speeds to their theoretical determinants.
Original languageEnglish
Pages (from-to)200-211
Number of pages12
JournalSouthern Economic Journal
Volume67
Issue number1
DOIs
Publication statusPublished - 1 Jul 2000

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