A Note on Transfer Prices and Exchange Rate Pass-Through From: Journal of Economics and Finance | Date: October 1, 2003| Author: | Copyright Journal of Economics and Finance Fall 2003. Provided by ProQuest LLC.Copyright information

Abstract

The paper builds a model of a parent corporation selling an intermediate product to a foreign subsidiary. The model is used to explain the response of foreign prices to changes in the exchange rate between the country of the parent affiliate and the foreign subsidiary. The model examines this response with and without an external market for the intermediate product. (JEL: F3, G0)

Introduction

If the "law of one price" holds, changes in foreign currency values between countries should be completely reflected by changes in prices in the two countries. Alternatively, if a country's ...

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