Question 9 Consider the following regression: A lnpt = a + y Alnet + SA Inc...
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Question 9 Consider the following regression: A lnpt = a + y Alnet + SA Inc + Alndt + Et (1) where p is the domestic price of the import products facing consumers, e is the exchange rate where an increase in e means domestic currency depreciation, c is a control for other domestic production costs not related to exchange rate, d is a control for other economic factors not related to exchange rate that could affect demand, A denotes the first difference of time (e.g., A In p₁ = ln pe - ln pr-1), € is the error term, In denotes the natural logarithm, and a, y, 8, are regression coefficients. (a) Explain what "exchange rate pass-through" is, and what would be the testable implication of exchange rate pass through in the above regression (1). (b) Explain how this kind of exchange rate pass-through phenomenon can be affected by Dominant Currency Paradigm (DCP). (c) Explain how firms could manage operating exposures. Question 9 Consider the following regression: A lnpt = a + y Alnet + SA Inc + Alndt + Et (1) where p is the domestic price of the import products facing consumers, e is the exchange rate where an increase in e means domestic currency depreciation, c is a control for other domestic production costs not related to exchange rate, d is a control for other economic factors not related to exchange rate that could affect demand, A denotes the first difference of time (e.g., A In p₁ = ln pe - ln pr-1), € is the error term, In denotes the natural logarithm, and a, y, 8, are regression coefficients. (a) Explain what "exchange rate pass-through" is, and what would be the testable implication of exchange rate pass through in the above regression (1). (b) Explain how this kind of exchange rate pass-through phenomenon can be affected by Dominant Currency Paradigm (DCP). (c) Explain how firms could manage operating exposures.
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a Exchange rate passthrough is a phenomenon in which an increase in exchange rate affects the domestic prices of imports In the above regression the c... View the full answer
Related Book For
Business Statistics A Decision Making Approach
ISBN: 9780133021844
9th Edition
Authors: David F. Groebner, Patrick W. Shannon, Phillip C. Fry
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