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Pricing to Market in a Small Open Economy

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  • Naug, Bjorn
  • Nymoen, Ragnar

Abstract

The determinants of Norwegian import prices of manufactures are investigated over the period 1970(1)-1991(4). Multivariate cointegration analysis establishes a long-run relationship between import prices, foreign prices, the exchange rate, and domestic unit labor costs. Normalized on import prices, the long-run elasticities are 0.63 (foreign prices and the exchange rate) and 0.37 (domestic costs). Deviations from this relationship are highly significant in a structural import price equation, which also contains positive effects of growth in domestic demand and inflation as well as a negative effect from the Norwegian unemployment rate. The estimated parameters appear reasonably stable within the sample. Copyright 1996 by The editors of the Scandinavian Journal of Economics.

Suggested Citation

  • Naug, Bjorn & Nymoen, Ragnar, 1996. " Pricing to Market in a Small Open Economy," Scandinavian Journal of Economics, Wiley Blackwell, vol. 98(3), pages 329-350.
  • Handle: RePEc:bla:scandj:v:98:y:1996:i:3:p:329-50
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