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Cross-country Relative Price Volatility: Effects of Market Structure

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  • Yin-Wong Cheung
  • Eiji Fujii

Abstract

Using annual data on nine manufacturing sectors of 18 OECD countries, the article studies the implications of market structure for cross-country relative price variability. It is found that, in accordance with predictions from a standard markup pricing model, reductions in market competition, along with increased nominal exchange rate volatility, are associated with greater variability of cross-country relative prices. The market structure also has similar effects on components of cross-country relative price variability. The empirical findings are robust to the inclusion of various control variables and alternative sample specifications. Copyright � 2006 The Authors; Journal compilation � 2006 Blackwell Publishing Ltd.

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Bibliographic Info

Article provided by Wiley Blackwell in its journal Review of International Economics.

Volume (Year): 14 (2006)
Issue (Month): 5 (November)
Pages: 836-848

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Handle: RePEc:bla:reviec:v:14:y:2006:i:5:p:836-848

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References

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  1. Engel, Charles, 1993. "Real exchange rates and relative prices : An empirical investigation," Journal of Monetary Economics, Elsevier, vol. 32(1), pages 35-50, August.
  2. Shang-Jin Wei & David C. Parsley, 1995. "Purchasing Power Disparity During the Floating Rate Period: Exchange Rate Volatility, Trade Barriers and Other Culprits," NBER Working Papers 5032, National Bureau of Economic Research, Inc.
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  8. Ronald MacDonald & Luca Antonio Ricci, 2001. "PPP and the Balassa Samuelson Effect: The Role of the Distribution Sector," IMF Working Papers 01/38, International Monetary Fund.
  9. Goldberg, PK & Verboven, Frank, 2005. "Market integration and convergence to the Law of One Price: evidence from the European car market," Open Access publications from Katholieke Universiteit Leuven urn:hdl:123456789/99322, Katholieke Universiteit Leuven.
  10. Charles Engel & John H. Rogers, 1998. "Relative Price Volatility: What Role Does the Border Play?," Discussion Papers in Economics at the University of Washington 0061, Department of Economics at the University of Washington.
  11. Haskel, Jonathan & Wolf, Holger, 2001. " The Law of One Price--A Case Study," Scandinavian Journal of Economics, Wiley Blackwell, vol. 103(4), pages 545-58, December.
  12. Yin-Wong Cheung & Menzie D. Chinn & Eiji Fujii, 1999. "Market Structure and the Persistence of Sectoral Real Exchange Rates," NBER Working Papers 7408, National Bureau of Economic Research, Inc.
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Citations

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Cited by:
  1. Yin-Wong Cheung & Kon S. Lai, 2006. "A Reappraisal of the Border Effect on Relative Price Volatility," CESifo Working Paper Series 1640, CESifo Group Munich.
  2. Martin Gonzalez-Eiras & Dirk Niepelt, 2004. "Sustaining Social Security," 2004 Meeting Papers 199, Society for Economic Dynamics.
  3. Tsuruta, Yoshitaka, 2008. "What affects intranational price dispersion?: The case of Japanese gasoline prices," Japan and the World Economy, Elsevier, vol. 20(4), pages 563-584, December.

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