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U of I Only AAI9512302 (UMI)AAI9512302 Grinols, Earl L. Bishop, Paul Charles 2011-05-07T13:44:37Z 2011-05-07T13:44:37Z 10000-01-01 1994 This dissertation examines several theoretical and empirical issues associated with exchange rate pass-through, defined as the percentage change in import prices for a one percent change in the exchange rate. The theoretical sections of this study posit a conjectural variations model of industrial competition. In its simplest form there is one domestic and one foreign firm that each set a price for a differentiated good based on simple profit maximization criteria under various conjectures about the other firm's response. Unlike previous pass-through models, it is recognized that firms use inputs that can be from a home or foreign country supplier. Sourcing is defined as the extent to which one firm uses as an input a good from the other country. Therefore, the extent to which each firm uses a sourced input will expose each firm's costs to exchange rate fluctuations. It is shown that as the extent of sourcing by the foreign firm increases, the pass-through elasticity on domestic import prices becomes more inelastic. Thus, we would expect that as the amount of inter-industry trade in intermediate goods increases, import prices would become less responsive to the exchange rate. The model is extended to an industry structure where there is a set of identical domestic and a set of identical foreign firms. It is shown that as the number of foreign firms increases, the pass-through elasticity becomes more elastic. The empirical section of the study estimates exchange rate pass-through for manufactured goods and for auto imports from five countries. Using the technique of Transfer Function-Noise Models, it is shown that for manufactured goods, import prices did not change as much as historical experience would have suggested given the exchange rate swing of the eighties. A statistically valid measure of the size of the deviation is calculated along with a test for structural stability of the model. In all cases, the test for stability indicated that a structural change occurred during the early eighties exchange rate appreciation. Similar results are also derived for auto imports from Germany, Italy and Japan. Made available in DSpace on 2011-05-07T13:44:37Z (GMT). No. of bitstreams: 2 license.txt: 4922 bytes, checksum: 910b249b4beec47e7ab768910c8f966f (MD5) 9512302.pdf: 11476081 bytes, checksum: 9d83ec9536360b9fbb385afe70c7f211 (MD5) Previous issue date: 1994 Item marked as restricted to the 'UIUC Users [automated]' Group (id=2) by Howard Ding (hding2@illinois.edu) on 2011-05-07T14:58:37Z Item is restricted indefinitely. Restriction data tranferred 2014-07-01T11:27:35-05:00 Original Data Group with Access UIUC Users [automated] Release Date: none Reason: ETDs are only available to UIUC Users without author permission ETDs are only available to UIUC Users without author permission http://hdl.handle.net/2142/22585 eng Copyright 1994 Bishop, Paul Charles Economics, General Economics, Theory Exchange rate pass-through: Theoretical and empirical issues text Economics Economics University of Illinois at Urbana-Champaign Dissertation Ph.D.