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Border prices and retail prices

  • David W. Berger
  • Jon Faust
  • John H. Rogers
  • Kai Steverson

We analyze retail prices and at-the-dock (import) prices of specific items in the Bureau of Labor Statistics' (BLS) CPI and IPP databases, using both databases simultaneously to identify items that are identical in description at the dock and when sold at retail. This identification allows us to measure the distribution wedge associated with bringing traded goods from the point of entry into the United States to their retail outlet. We find that overall U.S. distribution wedges are 50-70%, around 10 to 20 percentage points higher than that reported in the literature. We discuss the implications of this for measuring the size of the "pure" tradeables sector, exchange rate pass-through, and real exchange rate determination. We find that distribution wedges are very stable over time but there is considerable variation across items. There is some variation across the country of origin for the imported item, for our major trading partners, but not as much as the cross-item variation. We also investigate the determinants of distribution wedges, finding that wedges do not vary systematically with exchange rates, but are related to other features of the micro data.

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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 972.

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Date of creation: 2009
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Handle: RePEc:fip:fedgif:972
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  1. Emi Nakamura & Dawit Zerom, 2010. "Accounting for Incomplete Pass-Through," Review of Economic Studies, Oxford University Press, vol. 77(3), pages 1192-1230.
  2. Burstein, Ariel T. & Neves, Joao C. & Rebelo, Sergio, 2003. "Distribution costs and real exchange rate dynamics during exchange-rate-based stabilizations," Journal of Monetary Economics, Elsevier, vol. 50(6), pages 1189-1214, September.
  3. Engel, C., 1996. "Accounting for U.S. Real Exchange Rate Changes," Discussion Papers in Economics at the University of Washington 96-02, Department of Economics at the University of Washington.
  4. Andrew Atkeson & Ariel Burstein, 2008. "Pricing-to-market, trade costs, and international relative prices," Staff Report 404, Federal Reserve Bank of Minneapolis.
  5. Michael Devereux & Charles Engel & Cedric Tille, 1999. "Exchange-Rate Pass-Through and the Welfare Effects of the Euro," Working Papers 0034, University of Washington, Department of Economics.
  6. Giancarlo CORSETTI & Luca DEDOLA, 2003. "Macroeconomics of International Price Discrimination," Economics Working Papers ECO2003/20, European University Institute.
  7. Mark Bils & Peter J. Klenow, 2002. "Some Evidence on the Importance of Sticky Prices," NBER Working Papers 9069, National Bureau of Economic Research, Inc.
  8. Linda S. Goldberg & José Manuel Campa, 2010. "The Sensitivity of the CPI to Exchange Rates: Distribution Margins, Imported Inputs, and Trade Exposure," The Review of Economics and Statistics, MIT Press, vol. 92(2), pages 392-407, May.
  9. Corsetti, Giancarlo & Dedola, Luca & Leduc, Sylvain, 2004. "International Risk Sharing and the Transmission of Productivity Shocks," CEPR Discussion Papers 4746, C.E.P.R. Discussion Papers.
  10. Gita Gopinath & Roberto Rigobon, 2008. "Sticky Borders," The Quarterly Journal of Economics, Oxford University Press, vol. 123(2), pages 531-575.
  11. James E. Anderson & Eric van Wincoop, 2004. "Trade Costs," Journal of Economic Literature, American Economic Association, vol. 42(3), pages 691-751, September.
  12. Hamid Faruqee & Dalia S Hakura & Ehsan U. Choudhri, 2002. "Explaining the Exchange Rate Pass-Through in Different Prices," IMF Working Papers 02/224, International Monetary Fund.
  13. Kanda Naknoi, 2015. "Exchange Rate Pass-Through and Market Structure in Multi-Country World," 2015 Meeting Papers 1519, Society for Economic Dynamics.
  14. Gita Gopinath & Oleg Itskhoki & Roberto Rigobon, 2010. "Currency Choice and Exchange Rate Pass-Through," American Economic Review, American Economic Association, vol. 100(1), pages 304-36, March.
  15. Corsetti, Giancarlo & Dedola, Luca, 2005. "A macroeconomic model of international price discrimination," Journal of International Economics, Elsevier, vol. 67(1), pages 129-155, September.
  16. Pinelopi Koujianou Goldberg & Rebecca Hellerstein, 2008. "A Structural Approach to Explaining Incomplete Exchange-Rate Pass-Through and Pricing-to-Market," American Economic Review, American Economic Association, vol. 98(2), pages 423-29, May.
  17. Corsetti, Giancarlo & Dedola, Luca & Leduc, Sylvain, 2008. "High exchange-rate volatility and low pass-through," Journal of Monetary Economics, Elsevier, vol. 55(6), pages 1113-1128, September.
  18. Sergio Rebelo & Ariel Burstein & Martin Eichenbaum, 2004. "Large Devaluations and the Real Exchange Rate," 2004 Meeting Papers 137, Society for Economic Dynamics.
  19. repec:fip:fedgsq:y:2007:i:mar2 is not listed on IDEAS
  20. Emi Nakamura & Jón Steinsson, 2008. "Five Facts about Prices: A Reevaluation of Menu Cost Models," The Quarterly Journal of Economics, Oxford University Press, vol. 123(4), pages 1415-1464.
  21. Gita Gopinath & Oleg Itskhoki, 2010. "Frequency of Price Adjustment and Pass-Through," The Quarterly Journal of Economics, Oxford University Press, vol. 125(2), pages 675-727.
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