Industry Restructuring, Mark-ups, and Exchange Rate Pass-Through
AbstractConsumer prices are not very responsive to movements in nominal exchange rates and their response has fallen considerably in Canada since the mid 1980s. This paper explores two of the most likely explanations for this decline in exchange rate pass-through to consumer prices: (1) lower inflation and (2) restructuring in the retail sector. We believe that both explanations are important but our focus in this paper is the latter explanation. We first present estimates which suggest that mark-ups in the retail sector in Canada have decreased while concentration has increased over this time period. We also discuss other trends in Canadian retailing which suggest considerable restructuring in this sector which have led to changes in the nature of competition. Based on this evidence, we argue that it is important to examine pass-through in industrial organization models with strategic elements. We present such a model which generates lower mark-ups, higher concentration, and lower exchange rate pass-through simultaneously.
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Bibliographic InfoPaper provided by Society for Economic Dynamics in its series 2006 Meeting Papers with number 707.
Date of creation: 03 Dec 2006
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Postal: Society for Economic Dynamics Christian Zimmermann Economic Research Federal Reserve Bank of St. Louis PO Box 442 St. Louis MO 63166-0442 USA
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Exchange Rate Pass-Through; Strategic Pricing;
Other versions of this item:
- Beverly Lapham & Danny Leung, 2006. "Industry Restructuring, Mark-ups, and Exchange Rate Pass-Through," Working Papers 1120, Queen's University, Department of Economics.
- F31 - International Economics - - International Finance - - - Foreign Exchange
- F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-01-13 (All new papers)
- NEP-CBA-2007-01-13 (Central Banking)
- NEP-IFN-2007-01-13 (International Finance)
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