A unified framework for analysing price interdependence, innovative activity and exchange rate pass-through

This paper develops an international oligopoly model in which domestic and foreign firms simultaneously choose their price and innovation strategies under the assumption of non-zero conjectural variations in relation to their competitors’ price changes. The model captures the links between the excha...

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Bibliographic Details
Published in:Economics letters 2014-02, Vol.122 (2), p.159-162
Main Authors: Brissimis, Sophocles N., Kosma, Theodora S.
Format: Article
Language:English
Subjects:
Conjectural variations
Decision making models
Economic dependence
Economic theory
Exchange rate pass-through
Exchange rates
Foreign exchange rates
Innovation
Innovations
Innovative activity
Oligopoly
Price variance
Studies
Translog expenditure function
Citations: Items that this one cites
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Summary:This paper develops an international oligopoly model in which domestic and foreign firms simultaneously choose their price and innovation strategies under the assumption of non-zero conjectural variations in relation to their competitors’ price changes. The model captures the links between the exchange rate, foreign and domestic firms’ prices and investment in process innovation and provides a unified framework for analysing exchange rate pass-through. •We present an international oligopoly model.•The model endogenises price and innovation decisions of foreign and domestic firms.•The paper introduces process innovation in the exchange rate pass-through literature.•Innovative activity is an important determinant of pass-through.
ISSN:0165-1765
1873-7374
DOI:10.1016/j.econlet.2013.11.016