International Journal of Business and Economics Volume 4, No. 1 April​, 2005

Revisiting Perverse Effects on Exchange Rate Pass-Through

Koji Okuguchi

Department of Economics and Information, Gifu Shotoku Gakuen University, Japan

Abstract

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.

Keywords：exchange rate pass-through, international duopoly, decreasing marginal cost.

JEL Classifications：F1, L1.

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