La-Pleiade and Exchange-Rate Pass-Through

Abstract

We examine the effects of a change in the exchange rate on sales and prices in the framework of a two-country, two-commodity duopoly model with joint production. We distinguish two kinds of reaction. When the firm located in the country whose currency depreciates (appreciates) increases (decreases) sales in both countries, we call it the 'firm-specific' effect. If all sales in the country which appreciates (depreciates) its currency increase (decrease), we call it the 'country-specific' effect. Strategic substitutability, economies of joint production and/or economies of scale lead to the firm-specific effect. Strategic complementarity, diseconomies of joint production and/or diseconomies of scale lead to the country-specific effect.