Exchange Rate Pass-Through and the Role of International Distribution Channels
Posted: 23 Feb 2015
Date Written: December 1996
Manufacturers selling in foreign markets often do not completely pass on the effects of fluctuations in exchange rates to the prices of their products. Our paper addresses this puzzle and studies the effects of the international distribution channel on exchange rate pass-through. We develop an exchange rate pass-through model that takes into account the role of an intermediary between a domestic manufacturer and its consumers in a foreign market. We find that the magnitude of the pass-through depends on the presence of an incentive problem in the distribution channel. When there is no incentive problem, pass-through is complete; however, when there is an incentive problem, pass-through depends on various characteristics of the intermediary and the market setting. Our analysis underscores the importance of considering the role of international distribution channels and suggests directions for further work on exchange rate pass-through.
JEL Classification: F23, D30, D82
Suggested Citation: Suggested Citation