This reply responds to a comment that correctly identifies an invalid assumption in our original article that antidumping (AD) duties are subtracted from the U.S. price when calculating AD duties in administrative reviews. While this point invalidates our theoretical explanation and empirical evidence on the magnitude of AD duty pass-through, it does not affect our original article's theory or empirical evidence on the magnitude of exchange rate pass-through, or the presence of structural breaks in both the AD duty and exchange-rate pass-through coefficients stemming from AD investigations and orders.

Antidumping (AD) trade protection policies allow government agencies to recalculate AD duties based on foreign firms' most recent pricing behavior. We examine the resulting dynamic pricing problem of a foreign firm facing such policy. We show that the expected pattern of AD duty recalculations over time crucially depends on the foreign firm's ex ante expectations of possible outcomes of AD policy enforcement. Our empirical analysis then confirms the role of ex ante expectations in explaining observed patterns of AD recalculations. Many of our model's results are applicable to other situations where enforcement of policy is tied to the subject's behavior.

Antidumping Investigations and the Pass-Through of Antidumping Duties and Exchange Rates by Bruce A. Blonigen and Stephen E. Haynes. Published in volume 92, issue 4, pages 1044-1061 of American Economic Review, September 2002

Estimating the Knowledge-Capital Model of the Multinational Enterprise: Comment by Bruce A. Blonigen, Ronald B. Davies and Keith Head. Published in volume 93, issue 3, pages 980-994 of American Economic Review, June 2003