Template-Type: ReDIF-Paper 1.0
Title: Exchange Rates and Perfect Competition
Author-Name: Thorsten Hens
Abstract: We consider two types of firms both operating in two countries.
  	The demand side of the markets of the two countries are separated
  	and each type of firm produces its good in one of these countries.
  	We study the effect of an exchange rate change on the competitive
  	equilibrium prices in each country. When producing for the foreign
  	market causes the same costs as producing for the home market then
  	the `Law of one Price' holds and an exchange rate change is
  	completely offset by price changes. Furthermore when cost functions
  	are additively separable between producing for the home and
  	producing for the foreign market then prices move in the `right'
  	direction in response to an exchange rate change. However, with
  	general cost structures, even in this simple competitive model, any
  	direction of price changes can result from an exchange rate change.
Creation-Date: 1994-12
File-URL: http://www.wiwi.uni-bonn.de/bgsepapers/bonsfa/bonsfa466.ps
File-Format: Application/PostScript
File-Size: 14
Handle: RePEc:bon:bonsfa:466