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Pricing to Market and the Real Exchange Rate

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  • Hamid Faruqee

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 market segmentation. 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 when goods markets remain segmented.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 95/12.

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Length: 34
Date of creation: 01 Jan 1995
Date of revision:
Handle: RePEc:imf:imfwpa:95/12

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Cited by:
  1. 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.
  2. Laura Mayoral & Maréa Dolores Gadea, 2009. "Analyzing aggregate real exchange rate persistence through the lens of sectoral data," Working Papers 399, Barcelona Graduate School of Economics.
  3. 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.
  4. Mayoral, Laura & Dolores Gadea, María, 2011. "Aggregate real exchange rate persistence through the lens of sectoral data," Journal of Monetary Economics, Elsevier, vol. 58(3), pages 290-304.
  5. Warmedinger, Thomas, 2004. "Import prices and pricing-to-market effects in the euro area," Working Paper Series 0299, European Central Bank.
  6. Hamid Faruqee, 2004. "Exchange Rate Pass-Through in the Euro Area," IMF Working Papers 04/14, International Monetary Fund.
  7. Emilio Pineda & Paul Cashin & Yan Sun, 2009. "Assessing Exchange Rate Competitiveness in the Eastern Caribbean Currency Union," IMF Working Papers 09/78, International Monetary Fund.
  8. C. John McDermott & Paul Cashin, 2004. "Parity Reversion in Real Exchange Rates," IMF Working Papers 04/128, International Monetary Fund.
  9. 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.

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