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Market Structure and the Persistence of Sectoral Real Exchange Rates

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Author Info
Yin-Wong Cheung
Menzie D. Chinn
Eiji Fujii

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Abstract

We examine the relationship between market structure and the persistence of U.S. dollar-based sectoral real exchange rates for fourteen OECD countries. Our empirical results based on disaggregated data suggest that differences in market structure significantly determine the rates at which deviations from sectoral purchasing power parity decay. Specifically, industries with a larger price-cost margin are found to exhibit slower parity reversion of their sectoral real exchange rates. Further, as the degree of intra-industry trade activity increases, sectoral real exchange rate persistence becomes more pronounced. These findings imply that an imperfectly competitive market structure contributes to the well-documented persistence in real exchange rates.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 7408.

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Date of creation: Oct 1999
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Handle: RePEc:nbr:nberwo:7408

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F31 - International Economics - - International Finance - - - Foreign Exchange
F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General

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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Maurice Obstfeld & Kenneth Rogoff, 2000. "The Six Major Puzzles in International Macroeconomics: Is There a Common Cause?," Center for International and Development Economics Research, Working Paper Series 1010, Center for International and Development Economics Research, Institute for Business and Economic Research, UC Berkeley. [Downloadable!]
    Other versions:
  2. Fabio Ghironi & Marc J. Melitz, 2004. "International Trade and Macroeconomic Dynamics with Heterogeneous Firms," NBER Working Papers 10540, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  3. Luca Antonio Ricci & Ronald MacDonald, . "PPP and the Balassa Samuelson Effect: The Role of the Distribution Sector," IMF Working Papers 01/38, International Monetary Fund. [Downloadable!]
    Other versions:
  4. Yin-Wong Cheung & Kon S. Lai, 2006. "A Reappraisal of the Border Effect on Relative Price Volatility," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
    Other versions:
  5. Yin-wong Cheung & Eiji Fujii, 2005. "Cross-Country Relative Price Volatility: Effects of Market Structure," Working Papers 192005, Hong Kong Institute for Monetary Research. [Downloadable!]
    Other versions:
  6. Joanna Wolszczak-Derlacz & Rembert De Blander, 2009. "Price convergence in the European Union and in the New Member States," Bank i Kredyt, National Bank of Poland, Economic Institute, vol. 40(2), pages 37-59. [Downloadable!]
  7. Giorgio Fazio & Peter McAdam & Ronald MacDonald, 2007. "Disaggregate Real Exchange Rate Behaviour," Open Economies Review, Springer, vol. 18(4), pages 389-404, September. [Downloadable!] (restricted)
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  8. ANTHONY de CARVALHO, 2002. "Wage Adjustment, Imperfect Competition and Real Exchange Rate Reversion: An Attempt to Unravel the PPP Puzzle," Discussion Papers 706, The Research Institute of the Finnish Economy. [Downloadable!]
  9. Luca Antonio Ricci & Ronald MacDonald, 2002. "Purchasing Power Parity and New Trade Theory," IMF Working Papers 02/32, International Monetary Fund. [Downloadable!]
  10. Paul Cashin & C. John McDermott, 2004. "Parity Reversion in Real Exchange Rates: Fast, Slow or Not at All?," IMF Working Papers 04/128, International Monetary Fund. [Downloadable!]
  11. Joanna Wolszczak-Derlacz, 2008. "Price convergence in the EU—an aggregate and disaggregate approach," International Economics and Economic Policy, Springer, vol. 5(1), pages 25-47, July. [Downloadable!] (restricted)
  12. Iwatsubo, Kentaro, 2006. "Adjustment Speeds of Nominal Exchange Rates and Prices toward Purchasing Power Parity," CEI Working Paper Series 2005-11, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University. [Downloadable!]
  13. Darbha, Gangadhar & Patel, Urjit R., 2004. "Nonlinear Adjustment in Real Exchange Rates and Long Run Purchasing Power Parity--Further Evidence," Working Papers 04-1, University of Pennsylvania, Wharton School, Weiss Center. [Downloadable!]
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