We are grateful to an anonymous referee of the journal, Paul De Grauwe, Hans Dewachter, Vitor Gaspar, Dennis Novy, Frank Smets and to seminar participants at the Universities of Sabancı and Leuven, at the European Central Bank, and at the Birkbeck/Cambridge/QMUL joint workshop in Cambridge for their constructive comments. The usual disclaimer applies.
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EXCHANGE RATES, PRICES AND INTERNATIONAL TRADE IN A MODEL OF ENDOGENOUS MARKET STRUCTURE†
Article first published online: 7 FEB 2007
DOI: 10.1111/j.1467-9957.2007.01009.x
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How to Cite
AKSOY, Y. and LUSTIG, H. (2007), EXCHANGE RATES, PRICES AND INTERNATIONAL TRADE IN A MODEL OF ENDOGENOUS MARKET STRUCTURE. The Manchester School, 75: 160–192. doi: 10.1111/j.1467-9957.2007.01009.x
- †
Manuscript received 2.11.04; final version received 7.9.06.
Publication History
- Issue published online: 7 FEB 2007
- Article first published online: 7 FEB 2007
- Abstract
- Article
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- Cited By
We suggest a new dynamic equilibrium approach that features product differentiation and endogenizes market structure at the same time. The model yields clear-cut predictions regarding the effects of small and large exchange rate shocks on the market structure, pass-through and international trade. First, we account for the asymmetric price adjustment process with respect to exchange rate shocks. Second, we discuss an array of conditions where short- and long-run international monetary neutrality is violated. We present in detail under which conditions imperfect competition is able to generate persistent and volatile real exchange rate deviations. Most predictions survive alternative market configurations.