EXCHANGE RATE PASS-THROUGH AND ITS RELATION TO MARKET POWER: REINTERPRETATION OF THE DEGREE OF EXCHANGE RATE PASS-THROUGH

We propose a different perspective for interpretation of exchange rate pass-through: a relatively lower (higher) degree of pass-through implies a competitive (less competitive) market. Using three different wheat exporting countries, the United States, Canada, and Australia, and two importing countries, Japan and Korea, we are not likely to reject our hypothesis. In the competitive market (Japan), the exporting countries determine their prices based on changes in the competing country's price, and as a result, there is a close-to-zero degree of exchange rate pass-through. However, a lower degree of price competition and a significantly higher degree of exchange rate pass-through are found in a less competitive market (Korea).