Download Exchange Rates and Prices: The Case of Australian by Jayant Menon PDF

By Jayant Menon

The target of this learn is to supply an in-depth research of the alternate expense pass-through dating, utilizing Australian imports of manufactures as a case research. The learn starts off by way of piecing jointly the theoretical literature on alternate fee pass-through, to supply the foundation for the advance of types for the empirical research. to put the empirical research m comparative context, a serious survey of the present empirical literature on alternate expense pass-through is then undertaken. this can be via a evaluate of elements of the constitution and function of Australian production that relate to the subject of the research. subsequent, the knowledge and technique are mentioned. The research of alternate cost pass-through is performed in phases. First, it seeks to set up the measure to which Australian buck (AUD) import costs of overall manufactures and 50 product different types contained therein have spoke back to the large fluctuations within the AUD through the Eighties. this is often performed via employing an econometric method which avoids the pit-falls in prior experiences to a delicately assembled info set. moment, the learn investigates the determinants of inter-product alterations within the measure of alternate price pass-through. this is often performed by way of touching on the pass-through coefficients to a sequence of variables representing overseas regulate, quantitative regulations (QRs), product features and industry constitution inside a go­ part regression framework.

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Extra info for Exchange Rates and Prices: The Case of Australian Manufactured Imports

Sample text

Test 1 is designed to capture the effect of imperfect substitutability between goods produced by different countries but sold in the one market as an independent cause of violation of the law of one price. Test 2 focuses on the good produced in one country but sold in different markets. Violation of Test 2 would be attributable to segmented markets which prevent differences in price of the same good from being arbitraged away. Examples of violation of Test 1 are Isard (1977), Norman (1975), Kravis and Lipsey (1978), Richardson (1978) and Milone (1986).

For simplicity, we assume that marginal cost of foreign firms, C F, is constant in their currency. We can write the inverse demand function as P(X), where X = n °x 0 + n Fx F. Profit maximisation by each finn, given the output of the other firms, yields the following first-order conditions for the domestic and foreign firms: P {1 - and X0 I (Eo X)} P{l-xF/(epX)} = (19) = (20) By denoting the market shares of each individual domestic and foreign ° firm as {3 and {3 F, we can write the necessary conditions for profit maximisation for each of the n ° domestic firms as: Chapter 2: Theory of Pass-through = 31 (21) and for each of the n F foreign firms: = (22) where C 0 and C F represent the marginal cost of domestic and foreign firms, respectively.

Multi-country (23 countries) analysis of passthrough for aggregate exports covering the period 1975q 1 to 1987q4. Export prices are mainly unit values. Wholesale prices used to construct cost of production index. OLS regressions fitted to firstdifferences of the variables.

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