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Import prices and pricing-to-market effects in the euro area

  • Warmedinger, Thomas
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    Pricing-to-market (PTM) behaviour implies that exporters adjust their prices to the prevailing prices in their export markets. For the importing country, PTM effects can be interpreted as a measure of the stability of domestic prices against foreign price and exchange rate developments. PTM behaviour can be attributed to the level of competitiveness and price stickiness in the importing country. This paper investigates PTM behaviour in the euro area from the importing country's perspective, for both individual countries and the euro area as a whole. Analysis firstly involves the estimation of PTM effects in the five largest euro area countries. Secondly, PTM effects in the euro area as a whole are estimated to be slightly higher than one half. The results from illustrative simulations suggest that the increase in euro-area inflation during the first two years of monetary union can be largely attributed to oil price and exchange rate developments. JEL Classification: C32, E31, F14, F47

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    File URL: http://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp299.pdf
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    Paper provided by European Central Bank in its series Working Paper Series with number 0299.

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    Date of creation: Jan 2004
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    Handle: RePEc:ecb:ecbwps:20040299
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    1. Fabiani, Silvia & Morgan, Julian, 2003. "Aggregation and euro area Phillips curves," Working Paper Series 0213, European Central Bank.
    2. Michael B. Devereux & Charles Engel & CÈdric Tille, 2003. "Exchange Rate Pass-Through and the Welfare Effects of the Euro," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 44(1), pages 223-242, February.
    3. Holger Brauer, 1999. "Price Setting in International Markets," Kiel Working Papers 915, Kiel Institute for the World Economy.
    4. Fagan, Gabriel & Henry, Jérôme & Mestre, Ricardo, 2001. "An area-wide model (AWM) for the euro area," Working Paper Series 0042, European Central Bank.
    5. Bernhofen, Daniel M. & Xu, Peng, 2000. "Exchange rates and market power: evidence from the petrochemical industry," Journal of International Economics, Elsevier, vol. 52(2), pages 283-297, December.
    6. Hamid Faruqee, 1995. "Pricing to Market and the Real Exchange Rate," IMF Working Papers 95/12, International Monetary Fund.
    7. Gross, Dominique M. & Schmitt, Nicolas, 2000. "Exchange rate pass-through and dynamic oligopoly: an empirical investigation," Journal of International Economics, Elsevier, vol. 52(1), pages 89-112, October.
    8. Paul Krugman, 1986. "Pricing to Market when the Exchange Rate Changes," NBER Working Papers 1926, National Bureau of Economic Research, Inc.
    9. Maurice Obstfeld & Kenneth S. Rogoff, 1996. "Foundations of International Macroeconomics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262150476, June.
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