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Volume 4, No. 1,
April 2005
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Revisiting
Perverse Effects on Exchange Rate Pass-Through
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Koji Okuguchi*
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Department
of Economics and Information, Gifu Shotoku Gakuen
University, Japan
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Abstract
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The effects of a change in the exchange rate
on product prices are investigated using a static
international duopoly model without product
differentiation. A general condition is derived for
perverse exchange rate pass-through assuming
decreasing marginal costs for firms in two trading
countries. The result is clarified on the basis of a
new diagram for determining equilibrium supplies in
the two countries.
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Key words
:
exchange rate pass-through; international duopoly;
decreasing
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marginal cost
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JEL classification
:
F1;
L1
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