We examine the impact of multinational firms (MNEs) on exchange rate pass-through when an MNE engages in Cournot competition with domestic and foreign rivals. The MNE can locate its production for the foreign market domestically — intra-firm trade (IT) — or in the foreign country — international production (IP). In addition to incomplete exchange rate pass-through, we show that an MNE increases the sensitivity of domestic market prices and reduces the sensitivity of foreign market prices to exchange rate movements. Finally, IT prices are more sensitive to exchange rate movements than their IP counterparts and react in the opposite direction.
Lai, A. and Secrieru, O. (2006), "Multinationals and Exchange Rate Pass-Through", Choi, J. and Click, R. (Ed.) Value Creation in Multinational Enterprise (International Finance Review, Vol. 7), Emerald Group Publishing Limited, Bingley, pp. 339-364. https://doi.org/10.1016/S1569-3767(06)07014-2Download as .RIS
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