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Pricing to Market, Staggered Contracts, and Real Exchange Rate Persistence

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  • Paul R. Bergin
  • Robert C. Feenstra

Abstract

This paper offers an explanation for the persistence observed in real exchange rate movements. The model combines pricing to market behavior with sticky prices generated by staggered contracts. A translog preference structure is sued to enhance both features. The paper finds that openness limits the degree of endogenous persistence. Nevertheless, the model under reasonable parameter values can replicate the serial correlation of real exchange rate data. Further, significant exchange rate data. Further, significant exchange rate volatility can be generated, and this is amplified by the presence of endogenous persistence

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 7026.

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Date of creation: Mar 1999
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Publication status: published as Bergin, Paul R. & Feenstra, Robert C., 2001. "Pricing-to-market, staggered contracts, and real exchange rate persistence," Journal of International Economics, Elsevier, vol. 54(2), pages 333-359, August.
Handle: RePEc:nbr:nberwo:7026

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