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Implications of production sharing on exchange rate pass-through

✍ Scribed by Amit Ghosh

Publisher
John Wiley and Sons
Year
2009
Tongue
English
Weight
181 KB
Volume
14
Category
Article
ISSN
1076-9307

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✦ Synopsis

Abstract

This paper presents a theoretical model to analyse exchange rate pass‐through when there is cross‐border production sharing. With production sharing, between two nations, we have pass‐through at two different levels, one at the level of the imported parts and components used in making the final good and the other at the level of the final good. We find the higher the pricing‐to‐market at the intermediate good level, the lower the pass‐through for the final good. The model is further extended to analyse three‐country production sharing, substitution between two alternate sources of imported inputs. Finally, we draw some policy implications. Copyright © 2008 John Wiley & Sons, Ltd.

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