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Pricing-to-market, staggered contracts, and real exchange rate persistence

Listed author(s):
  • Bergin, Paul R.
  • Feenstra, Robert C.

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 used 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 volatility can be generated, and this is amplified by the presence of endogenous persistence.

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Article provided by Elsevier in its journal Journal of International Economics.

Volume (Year): 54 (2001)
Issue (Month): 2 (August)
Pages: 333-359

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Handle: RePEc:eee:inecon:v:54:y:2001:i:2:p:333-359
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505552

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  24. Bergin, Paul R. & Feenstra, Robert C., 2000. "Staggered price setting, translog preferences, and endogenous persistence," Journal of Monetary Economics, Elsevier, vol. 45(3), pages 657-680, June.
  25. Chadha, Binky, 1987. "Contract length, monetary policy and exchange rate variability," Journal of International Money and Finance, Elsevier, vol. 6(4), pages 491-504, December.
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  28. Svensson, Lars E O & van Wijnbergen, Sweder, 1989. "Excess Capacity, Monopolistic Competition, and International Transmission of Monetary Disturbances," Economic Journal, Royal Economic Society, vol. 99(397), pages 785-805, September.
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