Market power and exchange rate adjustment in the presence of quotas

This paper compares the adjustment of prices, exchange rates, and production across a quota and a tariff regime. We study the factors determining the behavior of the quota rent and the 'pass-through' of exchange rate adjustment to the domestic prices of importable goods in a 'semi-small' economy characterized by monopolistic competitive market structure and short-run nominal contracts under a floating exchange rate regime. We demonstrate that the pass-through is determined by commercial policy, by the market power of the various producers and by the marginal propensity to consume out of transitory income.