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Title:Who bears the cost of a change in the exchange rate? The case of imported beer PDF Logo
Authors:Hellerstein, Rebecca
Issue Date:2004
Series/Report no.:Staff Report, Federal Reserve Bank of New York 179
Abstract:This paper quantifies the welfare effects of a change in the nominal exchange rate using the example of the beer market. I estimate a structural econometric model that makes it possible to compute manufacturers’ and retailers’ pass-through of a nominal exchange-rate change, without observing wholesale prices or firms’ marginal costs. I conduct counterfactual experiments to quantify how the change affects domestic and foreign firms’ profits and domestic consumer welfare. The counterfactual experiments show that foreign manufacturers bear more of the cost of an exchange-rate change than do domestic consumers, domestic manufacturers, or a domestic retailer. The model can be applied to other markets and can serve as a tool to assess the welfare effects of various exchange-rate policies.
Subjects:exchange-rate pass-through, law of one price, local-currency pricing, pricing-tomarket, cross-border vertical contracts, market segmentation, beer
JEL:D40
F14
F3
F4
L16
L60
Document Type:Working Paper
Appears in Collections:Staff Reports, Federal Reserve Bank of New York

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