Pricing and Markets
U.S. and Japanese Responses to Currency Fluctuations
This study examines the pricing strategies of Japanese and U.S. firms in response to the sharp movements in the yen/dollar exchange rate in the 1980s. Export/domestic wholesale price ratios at the industry level are examined as a measure of firms' ability to "price discriminate" between national markets when faced with changes in exchange rates or domestic production conditions. A formal model of an exporting firm is used to assess the importance of exchange rate movements as opposed to other factors in determining pricing behavior.