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Title: |
Exchange Rate Uncertainty and Traded Goods
Prices |
| Author: |
Parsley, David
C.; Cai, Ziyong |
| Author
Affiliation: |
Vanderbilt U |
| Source: |
International Economic Journal, Summer 1995, v. 9, no. 2, pp. 27-35 |
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Publication Date: |
Summer 1995 |
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Abstract: |
This paper studies the effects of exchange
rate uncertainty on prices in an intertemporal context. That is, we
focus on tradeoffs between current and expected future volatility. We
show that uncertainty matters even to risk neutral firms due to its
effects on bid/ask spreads in foreign exchange. However, due to
intertemporal considerations, firms may choose not to pass through
increases in volatility to prices. Moreover, ignoring these
intertemporal considerations in empirical analyses will generally bias
the resulting ordinary least squares estimates of the effects of
uncertainty. |
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