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Import prices and the competing goods effect

  • Phillip Swagel

I use disaggregated U.S. data from 1978 to 1988 to examine the impact of changes in the prices of imported manufactured goods on corresponding domestic prices--the "competing goods effect." I use an econometric specification which allows for product differentiation between domestic and imported goods, and provides measures of exchange rate pass-through and economies of scale. ; I find that the impact of import prices on domestic prices varies substantially by industry, with statistically significant effects in nine of nineteen two-digit SIC manufacturing categoric:s. However, even where the effects are statistically significant, they are typically small in economic terms. On the whole, I do not find support for the anecdotal evidence that firms in US manufacturing industries take advantage of the reduced competitive discipline of higher ilnport prices. Because import prices are not a substantial determinant of domestic prices in the U.S., this implies that the consequent danger of imported inflation is small.>

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Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series International Finance Discussion Papers with number 508.

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Date of creation: 1995
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Handle: RePEc:fip:fedgif:508
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  1. Krishna, Kala, 1989. "Trade restrictions as facilitating practices," Journal of International Economics, Elsevier, vol. 26(3-4), pages 251-270, May.
  2. Feinberg, Robert M., 1996. "A simultaneous analysis of exchange-rate passthrough into prices of imperfectly substitutable domestic and import goods," International Review of Economics & Finance, Elsevier, vol. 5(4), pages 407-416.
  3. Robert C. Feenstra, 1987. "Symmetric Pass-Through of Tariffs and Exchange Rates Under Imperfect Competition: An Empirical Test," NBER Working Papers 2453, National Bureau of Economic Research, Inc.
  4. Knetter, Michael M, 1989. "Price Discrimination by U.S. and German Exporters," American Economic Review, American Economic Association, vol. 79(1), pages 198-210, March.
  5. Fisher, Eric, 1989. "A model of exchange rate pass-through," Journal of International Economics, Elsevier, vol. 26(1-2), pages 119-137, February.
  6. Froot, Kenneth A & Klemperer, Paul D, 1989. "Exchange Rate Pass-Through When Market Share Matters," American Economic Review, American Economic Association, vol. 79(4), pages 637-54, September.
  7. James Levinsohn, 1991. "Testing the Imports-as-Market-Discipline Hypothesis," NBER Working Papers 3657, National Bureau of Economic Research, Inc.
  8. Feenstra, Robert C. & Gagnon, Joseph E. & Knetter, Michael M., 1996. "Market share and exchange rate pass-through in world automobile trade," Journal of International Economics, Elsevier, vol. 40(1-2), pages 187-207, February.
  9. Harrison, Ann E., 1994. "Productivity, imperfect competition and trade reform : Theory and evidence," Journal of International Economics, Elsevier, vol. 36(1-2), pages 53-73, February.
  10. Basu, S.: Fernald, J.G., 1993. "Constant Returns and Small Markups in U.S. Manufacturing," Papers 93-19, Michigan - Center for Research on Economic & Social Theory.
  11. Dixit, Avinash K, 1989. "Hysteresis, Import Penetration, and Exchange Rate Pass-Through," The Quarterly Journal of Economics, MIT Press, vol. 104(2), pages 205-28, May.
  12. Marston, Richard C., 1990. "Pricing to market in Japanese manufacturing," Journal of International Economics, Elsevier, vol. 29(3-4), pages 217-236, November.
  13. Catherine J. Morrison, 1990. "Market Power, Economic Profitability and Productivity Growth Measurement: An Integrated Structural Approach," NBER Working Papers 3355, National Bureau of Economic Research, Inc.
  14. Peter Hooper & Catherine L. Mann, 1989. "Exchange Rate Pass-through in the 1980s: The Case of U.S. Imports of Manufactures," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 20(1), pages 297-337.
  15. Knetter, Michael M, 1994. "Did the Strong Dollar Increase Competition in U.S. Product Markets?," The Review of Economics and Statistics, MIT Press, vol. 76(1), pages 192-95, February.
  16. Catherine L. Mann, 1986. "Prices, profit margins, and exchange rates," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Jun, pages 366-379.
  17. Giovannini, Alberto, 1988. "Exchange rates and traded goods prices," Journal of International Economics, Elsevier, vol. 24(1-2), pages 45-68, February.
  18. Paul R. Krugman & Richard E. Baldwin, 1987. "The Persistence of the U.S. Trade Deficit," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 18(1), pages 1-56.
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