## Exchange Rate Pass-Through and Dynamic Oligopoly: An Empirical Investigation

_IMF Working Papers, April 1, 1999_

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## Bibliographic details
- Authors: Dominique M. Gross, Nicolas Schmitt
- Published: April 1, 1999
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451846621.001

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### Research question and approach
- Objective: Evaluate the degree of exchange rate pass-through while explicitly accounting for dynamic oligopolistic rivalry among source producers.
- Empirical case: Imported automobiles in Switzerland.
- Methodology: Uses recent time-series techniques (as described in the paper) to identify pricing behavior under oligopolistic rivalry.

### Key findings
- Prices are strategic complements.
- The degree of pass-through is lower in the long run than in the short run.
- Explanation provided: Although some rivals match long-term price changes, others do not, inducing the producer who faces a change in exchange rate to absorb a greater proportion of the variation.

### Thematic classifications and keywords
- Subject: Asset prices, Currencies, Exchange rate adjustments, Exchange rate pass-through, Exchange rates, Foreign exchange, Money, Prices
- Keywords: Asset prices; B. price rivalry; C. price dynamics; cost effect; cost model; cost variation; Currencies; exchange rate; Exchange rate adjustments; Exchange rate pass-through; Exchange rates; exogenous cost variable; interdependence matter; International trade; Oligopoly; price change; price decision; price effect; price interdependence; price series; WP

### Summary implications
- In dynamic oligopolistic markets for imported goods (example: automobiles in Switzerland), exchange rate shocks may be absorbed differently over horizons because rival firms’ heterogeneous long-run pricing responses alter the effective pass-through faced by the shock-exposed producer.
- Short-run pass-through exceeds long-run pass-through in this setting, implying different inflationary and competitiveness dynamics over time following exchange rate movements.

*IMF Working Paper: Exchange Rate Pass-Through and Dynamic Oligopoly: An Empirical Investigation (Dominique M. Gross, Nicolas Schmitt; April 1, 1999; Working Paper No. 1999/047).*

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