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Competition and Relative Prices when the Exchange Rate Changes: Evidence from Exporting Companies

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Abstract

In this paper we show the relevance of the degree of competition for inferences about changes in export-production relative prices when the nominal exchange rate changes. We devise a model for tradable goods that combines the market competition and the pricing-to-market literature and we empirically document the contrast between perfectly and imperfectly competitive markets for the export-production relative price responses to exchange rate changes. When the macroeconomic view is taken, a change in the degree of competition in exports (a change in the average mark-up on exported products) alternates the reaction in relative prices and quantity exported and thus requires careful policy-related consideration.

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File URL: http://journal.fsv.cuni.cz/storage/1103_1103_str_38_56_-_rakova-podpiera.pdf
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Bibliographic Info

Article provided by Charles University Prague, Faculty of Social Sciences in its journal Finance a uver - Czech Journal of Economics and Finance.

Volume (Year): 58 (2008)
Issue (Month): 01-02 (January)
Pages: 38-56

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Handle: RePEc:fau:fauart:v:58:y:2008:i:1-2:p:38-56

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Keywords: degree of competition; exchange rate; pricing-to-market;

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Cited by:
  1. Jan Bruha & Jiri Podpiera & Stanislav Polák, 2007. "The Convergence Dynamics of a Transition Economy: The Case of the Czech Republic," IMF Working Papers 07/116, International Monetary Fund.

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