Imperfect Exchange Rate Passthrough: Strategic Pricing and Menu Costs

27 Pages Posted: 1 May 2001

See all articles by Holger C. Wolf

Holger C. Wolf

Georgetown University - Edmund A. Walsh School of Foreign Service (SFS)

Atish R. Ghosh

International Monetary Fund (IMF) - Policy Development and Review Department

Date Written: March 2001

Abstract

A large body of literature finds that exporters do not pass nominal exchange rate movements fully through to destination market prices over short time horizons. This imperfect passthrough has been widely attributed to strategic "pricing-to-market", whereby exporters deliberately accept changes in the home currency value of export prices in order to gain or defend market share. We show that imperfect passthrough in the short run may also arise from simple menu costs. In contrast to strategic pricing, however, the long run passthrough is complete under menu costs with associated implications for trade adjustment. Examining the cover prices of two magazines, The Economist and Business Week, we find support for menu costs as a partial explanation of imperfect passthrough.

JEL Classification: F3, E3, D4

Suggested Citation

Wolf, Holger C. and Ghosh, Atish R., Imperfect Exchange Rate Passthrough: Strategic Pricing and Menu Costs (March 2001). CESifo Working Paper Series No. 436. Available at SSRN: https://ssrn.com/abstract=267836

Holger C. Wolf (Contact Author)

Georgetown University - Edmund A. Walsh School of Foreign Service (SFS) ( email )

Washington, DC 20057
United States
202-687-8079 (Phone)
202-687-8359 (Fax)

HOME PAGE: http://georgetown.edu/faculty/wolfhc/

Atish R. Ghosh

International Monetary Fund (IMF) - Policy Development and Review Department ( email )

700 19th St. NW
Washington, DC 20431
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
195
Abstract Views
1,422
rank
155,605
PlumX Metrics