EXCHANGE-RATE PASS-THROUGH IN 2-PERIOD DUOPOLY

This paper analyzes the issue of exchange rate pass-through in a two-p eriod model of duopolistic competition with differentiated products an d constant marginal costs. Conditions on import demand elasticities fo r normal and perverse pass-through, respectively, are derived for the case of perfect and imperfect capital mobility. In an example with lin ear demand it is additionally shown that temporary exchange-rate fluct uations cause current as well as future price changes which do not nec essarily point in the same direction. This model reproduces features o f the macroeconomic J-curve at a microeconomic level.