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Pricing to Market and the Real Exchange Rate

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  • Hamid Faruqee
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    Abstract

    This paper investigates the consequences of pricing to market for exchange rate pass-through and real exchange rate dynamics across different patterns of trade. Under two-way, intraindustry trade – where home prices display greater linkage with those of foreign competitors – domestic and export prices exhibit lower pass-through and greater destination-specific adjustment compared to intersectoral trade. With both trade patterns, pricing-to-market behavior intensifies the degree of persistence in the real exchange rate under nominal rigidities, and allows monetary shocks to have permanent effects on relative prices so long as goods markets remain segmented.

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    Bibliographic Info

    Article provided by Palgrave Macmillan in its journal International Monetary Fund Staff Papers.

    Volume (Year): 42 (1995)
    Issue (Month): 4 (December)
    Pages: 855-881

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    Handle: RePEc:pal:imfstp:v:42:y:1995:i:4:p:855-881

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    Web page: http://www.palgrave-journals.com/

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    Postal: Palgrave Macmillan Journals, Subscription Department, Houndmills, Basingstoke, Hampshire RG21 6XS, UK
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    Cited by:
    1. Jaanus Raim, 2004. "The Alternative to the Existing System of the Concepts about Purchasing Power Parity Deviations . Derived from the Estonian Experience," Working Papers 115, Tallinn School of Economics and Business Administration, Tallinn University of Technology.
    2. Choudhri, Ehsan U. & Faruqee, Hamid & Hakura, Dalia S., 2005. "Explaining the exchange rate pass-through in different prices," Journal of International Economics, Elsevier, vol. 65(2), pages 349-374, March.
    3. C. John McDermott & Paul Cashin, 2004. "Parity Reversion in Real Exchange Rates," IMF Working Papers 04/128, International Monetary Fund.
    4. Warmedinger, Thomas, 2004. "Import prices and pricing-to-market effects in the euro area," Working Paper Series 0299, European Central Bank.
    5. Hamid Faruqee, 2004. "Exchange Rate Pass-Through in the Euro Area," IMF Working Papers 04/14, International Monetary Fund.

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