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Border prices and retail prices

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  • David Berger
  • Jon Faust
  • John H. Rogers
  • Kai Steverson

Abstract

We analyze retail prices and at-the-dock (import) prices of specific items in the Bureau of Labor Statistics' (BLS) CPI and IPP databases, using both databases simultaneously to identify items that are identical in description at the dock and when sold at retail. This identification allows us to measure the distribution wedge associated with bringing traded goods from the point of entry into the United States to their retail outlet. We find that overall U.S. distribution wedges are 50-70%, around 10 to 20 percentage points higher than that reported in the literature. We discuss the implications of this for measuring the size of the "pure" tradeables sector, exchange rate pass-through, and real exchange rate determination. We find that distribution wedges are very stable over time but there is considerable variation across items. There is some variation across the country of origin for the imported item, for our major trading partners, but not as much as the cross-item variation. We also investigate the determinants of distribution wedges, finding that wedges do not vary systematically with exchange rates, but are related to other features of the micro data.

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Bibliographic Info

Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series International Finance Discussion Papers with number 972.

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Date of creation: 2009
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Handle: RePEc:fip:fedgif:972

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Keywords: Foreign exchange rates ; Prices;

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References

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  1. Ariel Burstein & Martin Eichenbaum & Sergio Rebelo, 2004. "Large Devaluations and the Real Exchange Rate," NBER Working Papers 10986, National Bureau of Economic Research, Inc.
  2. Corsetti, Giancarlo & Dedola, Luca, 2005. "A macroeconomic model of international price discrimination," Journal of International Economics, Elsevier, vol. 67(1), pages 129-155, September.
  3. Engel, C., 1996. "Accounting for U.S. Real Exchange Rate Changes," Discussion Papers in Economics at the University of Washington 96-02, Department of Economics at the University of Washington.
  4. Mark Bils & Peter J. Klenow, 2004. "Some Evidence on the Importance of Sticky Prices," Journal of Political Economy, University of Chicago Press, vol. 112(5), pages 947-985, October.
  5. Michael B. Devereux & Charles Engel & Cedric Tille, 1999. "Exchange Rate Pass-Through and the Welfare Effects of the Euro," NBER Working Papers 7382, National Bureau of Economic Research, Inc.
  6. James E. Anderson & Eric van Wincoop, 2004. "Trade Costs," Boston College Working Papers in Economics 593, Boston College Department of Economics.
  7. Andrew Atkeson & Ariel Burstein, 2008. "Pricing-to-market, trade costs, and international relative prices," Staff Report 404, Federal Reserve Bank of Minneapolis.
  8. Corsetti, Giancarlo & Dedola, Luca & Leduc, Sylvain, 2008. "High exchange-rate volatility and low pass-through," Journal of Monetary Economics, Elsevier, vol. 55(6), pages 1113-1128, September.
  9. Giancarlo Corsetti & Luca Dedola & Sylvain Leduc, 2008. "International Risk Sharing and the Transmission of Productivity Shocks," Review of Economic Studies, Oxford University Press, vol. 75(2), pages 443-473.
  10. Emi Nakamura & Dawit Zerom, 2010. "Accounting for Incomplete Pass-Through," Review of Economic Studies, Oxford University Press, vol. 77(3), pages 1192-1230.
  11. Linda S. Goldberg & José Manuel Campa, 2010. "The Sensitivity of the CPI to Exchange Rates: Distribution Margins, Imported Inputs, and Trade Exposure," The Review of Economics and Statistics, MIT Press, vol. 92(2), pages 392-407, May.
  12. Hamid Faruqee & Dalia Hakura & Ehsan U. Choudhri, 2002. "Explaining the Exchange Rate Pass-Through in Different Prices," IMF Working Papers 02/224, International Monetary Fund.
  13. Pinelopi Koujianou Goldberg & Rebecca Hellerstein, 2008. "A Structural Approach to Explaining Incomplete Exchange-Rate Pass-Through and Pricing-to-Market," American Economic Review, American Economic Association, vol. 98(2), pages 423-29, May.
  14. Gita Gopinath & Roberto Rigobon, 2006. "Sticky Borders," NBER Working Papers 12095, National Bureau of Economic Research, Inc.
  15. Gita Gopinath & Oleg Itskhoki, 2010. "Frequency of Price Adjustment and Pass-Through," The Quarterly Journal of Economics, MIT Press, vol. 125(2), pages 675-727, May.
  16. repec:fip:fedgsq:y:2007:i:mar2 is not listed on IDEAS
  17. Gita Gopinath & Oleg Itskhoki & Roberto Rigobon, 2010. "Currency Choice and Exchange Rate Pass-Through," American Economic Review, American Economic Association, vol. 100(1), pages 304-36, March.
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Cited by:
  1. Mario J. Crucini & J. Scott Davis, 2013. "Distribution Capital and the Short- and Long-Run Import Demand Elasticity," NBER Working Papers 18753, National Bureau of Economic Research, Inc.
  2. Dong, Wei, 2012. "The role of expenditure switching in the global imbalance adjustment," Journal of International Economics, Elsevier, vol. 86(2), pages 237-251.
  3. Marianne Baxter & Anthony Landry, 2012. "IKEA: product, pricing, and pass-through," Globalization and Monetary Policy Institute Working Paper 132, Federal Reserve Bank of Dallas.
  4. Etienne Gagnon & Benjamin R. Mandel & Robert J. Vigfusson, 2014. "Missing Import Price Changes and Low Exchange Rate Pass-Through," American Economic Journal: Macroeconomics, American Economic Association, vol. 6(2), pages 156-206, April.
  5. Ariel Burstein & Gita Gopinath, 2013. "International Prices and Exchange Rates," NBER Working Papers 18829, National Bureau of Economic Research, Inc.
  6. Michael Sposi, 2013. "Trade barriers and the relative price tradables," Globalization and Monetary Policy Institute Working Paper 139, Federal Reserve Bank of Dallas.

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