290 research outputs found
How much Does Household Collateral Constrain Regional Risk Sharing? (joint with Stijn Van Nieuwerburgh) (updated February 2006)
Investing in Foreign Currency is like Betting on your Intertemporal Marginal Rate of Substitution (joint with Adrien Verdelhan, BU, forthcoming in Papers and Proceedings JEEA)
The Cross-Section of Foreign Currency Risk Premia and US Consumption Growth Risk (joint with Adrien Verdelhan)(updated February 2006)
When is Market Incompleteness Irrelevant for the Price of Aggregate Risk (joint with Dirk Krueger, UPenn)
Can Housing Collateral Explain Long-Run Swings in Asset Returns? (joint with Stijn Van Nieuwerburgh)
Housing Collateral, Consumption Insurance and Risk Premia: an Empirical Perspective (joint with Stijn Van Nieuwerburgh), forthcoming Journal of Finance
On the short and long term real effects of nominal exchange rates
In this paper we assess the implications of sunk costs and product differentiation on the pricing decisions of the multinational firms. For this purpose we use a modified version of Salop's spatial competition. The model yields clear-cut predictions regarding the effects of exchange rate shocks on the market structure and on pass-through. The main results are following: shocks within the band of inaction do not affect market structure. The upper bound of this range rises as the industry ratio of sunk- to fixed costs increases. As fixed costs and product heterogeneity jointly increase, the lower bound drops. Outside of the range, depreciations cause one or several of those foreign brands closest to the home brand to leave. This decreases the overall responsiveness of prices to exchange rate shocks. Large appreciations induce entry and increase the elasticity of prices. This asymmetry implies larger positive than negative PPP deviations. When accounting for price changes in foreign markets, strategic pricing behaviour is no longer sufficient to generate real exchange rate variability. Incomplete pass-through obtains if and only if the domestic firms have a smaller market share abroad. With large nominal exchange rate shocks a hysteresis result obtains if and only if sunk costs are non-zero. Klassifikation: C33, E3
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