This paper explicitly takes into account the dynamic oligopolistic rivalry among source producers to evaluate the degree of exchange rate pass-through. Using recent time-series techniques for the case of imported automobiles in Switzerland, the results show that prices are strategic complements and that the degree of pass-through is lower in the long run than in the short run. We attribute this to the fact that, although some rivals match long-term price changes, others do not, inducing the producer who faces a change in exchange rate to absorb a greater proportion of the variation.
which first tests for cointegration in a system of equations and second, after imposing model-relevant restrictions, identifies the short-run structural parameters.
We find that dynamic priceinterdependence exists in this market both in the short and in the long run. In the short run for instance, we find that German and Japanese producers react to each other’s price changes by about 30 percent after one period. The results show however that the degree of pass-through is relatively low compared to other findings. It is also lower in the long run than in the short
I. I ntroduction
This paper applies the purchasing power parity (PPP) theory to explore exchange rate and priceinterdependence among five neighboring East African countries: Burundi, Kenya, Rwanda, Tanzania, and Uganda. If PPP is valid, then bilateral real exchange rates among these countries will tend to revert to a certain equilibrium mean following some disturbances. By studying the movements of bilateral real exchange rates 2 for the period 1979:1 to 1996:12, the paper attempts to assess competitiveness across these five economies, the degree of
In a case study of Burundi, Kenya, Rwanda, Tanzania, and Uganda, this paper finds that bilateral real exchange rates revert to a long-term equilibrium in line with purchasing power parities, implying that these countries constitute an integrated trading zone, their markets are interdependent and arbitrage works efficiently, and intraregional competitiveness is preserved. These findings are partly explained by the flexibility of nominal exchange rates and prices and the absence of long-term productivity differences among these countries. To strengthen market integration, foster private sector development, and enhance growth prospects, the paper emphasizes the importance of increased trade, competitive labor markets, flexible exchange rates, and convergence of macroeconomic and structural policies.
employed. See Griliches  and Nerlove and Wallis  .
56 In Appendix II, it is demonstrated that interindustry differences in employment behavior are related to interindustry differences in the costs of changing employment. More specifically, it is shown that the costs of changing employment are significantly higher for the low employment sensitivity industries than for the high employment sensitivity industries.
57 Interindustry price linkages are also important in selecting good target industries. However, a proper analysis of industry price
This paper discusses the underlying objectives of the exchange rate regime are necessarily related to broader objectives of the international financial system and the international economy. The exchange rate regime should help to promote a satisfactory working of the adjustment process. The exchange rate regime should help to promote, or at least support, the pursuit of economic and financial policies that contribute to countries’ domestic objectives, as regards both real economic variables and financial variables, notably including the degree of price stability. Attainment of the underlying objectives for the exchange rate regime suggests a number of instrumental or operational desiderata, which are listed below without regard to potential conflict between them and therefore without consideration of any trade-off among themselves. A system of adjustable parities and narrow margins should score well on the objective of exchange stability, provided that the adjustments are not too large or too frequent.