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Cross-country Relative Price Volatility: Effects of Market Structure

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Author Info
Yin-Wong Cheung
Eiji Fujii

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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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File URL: http://www.blackwell-synergy.com/links/doi/10.1111/j.1467-9396.2006.00617.x
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Publisher Info
Article provided by Blackwell Publishing 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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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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  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. [Downloadable!] (restricted)
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  4. Engel, Charles & Rogers, John H., 2001. "Deviations from purchasing power parity: causes and welfare costs," Journal of International Economics, Elsevier, vol. 55(1), pages 29-57, October. [Downloadable!] (restricted)
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  5. Goldberg, Pinelopi & Verboven, Frank, 2001. "Market Integration and Convergence to the Law of One Price: Evidence from the European Car Market," CEPR Discussion Papers 2926, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  6. Engel, Charles & Rogers, John H, 1996. "How Wide Is the Border?," American Economic Review, American Economic Association, vol. 86(5), pages 1112-25, December. [Downloadable!] (restricted)
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  7. Burstein, Ariel Tomas & Eichenbaum, Martin & Rebelo, Sérgio, 2005. "Modeling Exchange Rate Passthrough After Large Devaluations," CEPR Discussion Papers 5250, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  8. Luca Antonio Ricci & Ronald MacDonald, . "PPP and the Balassa Samuelson Effect: The Role of the Distribution Sector," IMF Working Papers 01/38, International Monetary Fund. [Downloadable!]
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  9. Jonathan Haskel & Holger Wolf, 2001. "The Law of One Price - A Case Study," NBER Working Papers 8112, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  10. Cheung, Yin-Wong & Chinn, Menzie & Fujii, Eiji, 2001. "Market Structure and the Persistence of Sectoral Real Exchange Rates," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 6(2), pages 95-114, April. [Downloadable!] (restricted)
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  11. Charles Engel, 1999. "Accounting for U.S. Real Exchange Rate Changes," Journal of Political Economy, University of Chicago Press, vol. 107(3), pages 507-538, June. [Downloadable!] (restricted)
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  12. Domowitz, Ian & Hubbard, R Glenn & Petersen, Bruce C, 1987. "Oligopoly Supergames: Some Empirical Evidence on Prices and Margins," Journal of Industrial Economics, Blackwell Publishing, vol. 35(4), pages 379-98, June. [Downloadable!] (restricted)
  13. 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. [Downloadable!]
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  14. Isard, Peter, 1977. "How Far Can We Push the "Law of One Price"?," American Economic Review, American Economic Association, vol. 67(5), pages 942-48, December. [Downloadable!] (restricted)
  15. Parsley, David C. & Wei, Shang-Jin, 2001. "Explaining the border effect: the role of exchange rate variability, shipping costs, and geography," Journal of International Economics, Elsevier, vol. 55(1), pages 87-105, October. [Downloadable!] (restricted)
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  1. Yin-Wong Cheung & Kon S. Lai, 2006. "A Reappraisal of the Border Effect on Relative Price Volatility," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
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