Title

Exchange rate shocks and the speed of trade price adjustment

Document Type

Journal article

Source Publication

Southern Economic Journal

Publication Date

7-1-2000

Volume

67

Issue

1

First Page

200

Last Page

211

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.

DOI

10.2307/1061621

Print ISSN

00384038

E-ISSN

23258012

Publisher Statement

Copyright © 2000 Southern Economic Association

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Recommended Citation

Ran, J., & Balvers, R. (2000). Exchange rate shocks and the speed of trade price adjustment. Southern Economic Journal, 67(1), 200-211. doi: 10.2307/1061621