NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Exchange Rates and Prices

Rudiger Dornbusch

NBER Working Paper No. 1769 (Also Reprint No. r0893)
Issued in December 1985
NBER Program(s):   ITI   IFM

The appreciation of the U.S. dollar over the past five years opens important areas of research. The fact of a large and persistent real appreciation poses a challenge for equilibrium theorists to uncover the change in fundamentals and seems to support the role of long-term wage contracts in macroeconomic adjustment. This paper adopts the perspective of given wages and investigates in a partial equilibrium setting the determinants of relative price changes of different groups of goods. Specifically it advances hypotheses about those sectors where an exchange rate change should lead to large relative price changes and others where the relative price effects should be negligible.The general idea is to draw an models of industrial organization to explain price adjustments in terms of the degree of market concentration, the extent of product homogeneity and substitutability, and the relative market shares of domestic and foreign firms. The exchange rate movement and the less than fully flexible money wage interact to produce a cost shock for some firms in an industry -- foreign firms in the home market and home firms abroad -- and thus bring about the need for an industry-wide adjustment in prices.

download in pdf format
   (209 K)

email paper

This paper is available as PDF (209 K) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w1769

Published: Dornbusch, Rudiger. "Exchange Rates and Prices," American Economic Review, Vol. 77, No. 1, (March 1987), pp. 93-106. citation courtesy of

Users who downloaded this paper also downloaded these:
Campa, Goldberg, and Gonzalez-Minguez w11632 Exchange-Rate Pass-Through to Import Prices in the Euro Area
Krugman w1926 Pricing to Market when the Exchange Rate Changes
Obstfeld and Rogoff w4693 Exchange Rate Dynamics Redux
Dornbusch w2071 Exchange Rate Economics: 1986
Obstfeld and Rogoff w5191 The Mirage of Fixed Exchange Rates
 
Publications
Activities
Meetings
NBER Videos
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us