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Pricing-to-market by Brazilian Exporters: a Panel Cointegration Approach

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  • João Barata Ribeiro Blanco Barroso

Abstract

This paper investigates Brazilian exporter's pricing behavior, over the longrun, following destination specific exchange rate shocks. The panel cointegration method of Bai, Kao and Ng (2009) is shown to identify the long-run parameter of interest. The method crucially depends on identification and controlling for the common trend in prices to different countries, a trend which is structurally interpreted, like originally proposed by Kneeter (1989), as the exporter's marginal cost. We find evidence of incomplete exchange-rate pass-through in the long-run, which supports the market structure explanations of Krugman (1986), known in the literature as pricing-to-market, over contending short-run sticky-price explanations. The degree of long-run pass-through is also shown to be positively related to technological intensity in the sector, a proxy for low elasticity of substitution of varieties.

Suggested Citation

  • João Barata Ribeiro Blanco Barroso, 2012. "Pricing-to-market by Brazilian Exporters: a Panel Cointegration Approach," Working Papers Series 270, Central Bank of Brazil, Research Department.
    • Handle: RePEc:bcb:wpaper:270
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    References listed on IDEAS

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    1. Knetter, Michael M, 1989. "Price Discrimination by U.S. and German Exporters," American Economic Review, American Economic Association, vol. 79(1), pages 198-210, March.
    2. Pinelopi Koujianou Goldberg & Michael M. Knetter, 1997. "Goods Prices and Exchange Rates: What Have We Learned?," Journal of Economic Literature, American Economic Association, vol. 35(3), pages 1243-1272, September.
    3. Jushan Bai & Serena Ng, 2002. "Determining the Number of Factors in Approximate Factor Models," Econometrica, Econometric Society, vol. 70(1), pages 191-221, January.
    4. Andrew Atkeson & Ariel Burstein, 2008. "Pricing-to-Market, Trade Costs, and International Relative Prices," American Economic Review, American Economic Association, vol. 98(5), pages 1998-2031, December.
    5. Paul Krugman, 1986. "Pricing to Market when the Exchange Rate Changes," NBER Working Papers 1926, National Bureau of Economic Research, Inc.
    6. Bai, Jushan & Kao, Chihwa & Ng, Serena, 2009. "Panel cointegration with global stochastic trends," Journal of Econometrics, Elsevier, vol. 149(1), pages 82-99, April.
    7. Peter C. B. Phillips & Hyungsik R. Moon, 1999. "Linear Regression Limit Theory for Nonstationary Panel Data," Econometrica, Econometric Society, vol. 67(5), pages 1057-1112, September.
    8. Sutherland, Alan, 2005. "Incomplete pass-through and the welfare effects of exchange rate variability," Journal of International Economics, Elsevier, vol. 65(2), pages 375-399, March.
    9. Abdulnasser Hatemi-J & Manuchehr Irandoust, 2004. "Is Pricing to Market Behavior a Long-Run Phenomenon? A Non-Stationary Panel Analysis," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 31(1), pages 55-67, March.
    10. Otani, Akira, 2002. "Pricing-to-Market (PTM) and the International Monetary Policy Transmission: The "New Open-Economy Macroeconomics" Approach," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 20(3), pages 1-34, October.
    11. Matteo Bugamelli & Roberto Tedeschi, 2008. "Pricing‐to‐Market and Market Structure," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 70(2), pages 155-180, April.
    12. By Shinji Takagi & Yushi Yoshida, 2001. "Exchange Rate Movements and Tradable Goods Prices in East Asia: An Analysis Based on Japanese Customs Data, 1988–1999," IMF Staff Papers, Palgrave Macmillan, vol. 48(2), pages 266-289.
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    Cited by:

    1. Bruno Martins, 2012. "Local Market Structure and Bank Competition: evidence from the Brazilian auto loan market," Working Papers Series 299, Central Bank of Brazil, Research Department.
    2. Angelo Marsiglia Fasolo, 2012. "A Note on Particle Filters Applied to DSGE Models," Working Papers Series 281, Central Bank of Brazil, Research Department.
    3. Waldyr Areosa & Marta Areosa, 2012. "Information (in) Chains: information transmission through production chains," Working Papers Series 286, Central Bank of Brazil, Research Department.

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