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Pricing in International Markets: A 'Small Country' Benchmark

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  • David C. Parsley

    (Vanderbilt University)

Abstract

This study examines exchange rate pass-through in a 'small country' context. The study uses a panel of disaggregated exports from Hong Kong to its major flexible exchange rate destinations since 1992. Most existing evidence on pass-through is taken from G7 countries and finds that export prices (in the importing currency) respond less than fully to exchange rate changes. The notable exception is for exports from the United States. Existing evidence suggests that exporters from the U.S. apparently do not mitigate export prices in response to exchange rates, while other countries' exporters routinely pass-through less than 100% of exchange rate changes. This study provides a benchmark by which to interpret the puzzling behavior of U.S. export prices. Empirically, Hong Kong's export price behavior overwhelmingly supports the competitive paradigm. In only a few cases is there evidence of less than complete pass-through by Hong Kong's exporters. The panel data set also allows an additional question to be addressed. In particular, there is no evidence of differences in pass-through across export destinations. Thus, by inference, near complete pass-through by U.S. exporters suggests similar competitive behavior.

Suggested Citation

  • David C. Parsley, 2001. "Pricing in International Markets: A 'Small Country' Benchmark," Working Papers 112001, Hong Kong Institute for Monetary Research.
  • Handle: RePEc:hkm:wpaper:112001
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    References listed on IDEAS

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    1. 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.
    2. Parsley, David C, 1995. "Exchange-Rate Pass-through with Intertemporal Linkages: Evidence at the Commodity Level," Review of International Economics, Wiley Blackwell, vol. 3(3), pages 330-341, October.
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    11. Dornbusch, Rudiger, 1987. "Exchange Rates and Prices," American Economic Review, American Economic Association, vol. 77(1), pages 93-106, March.
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    13. Paul Krugman, 1986. "Pricing to Market when the Exchange Rate Changes," NBER Working Papers 1926, National Bureau of Economic Research, Inc.
    14. Atish R. Ghosh & Holger C. Wolf, 1994. "Pricing in International Markets: Lessons from The Economist," Working Papers 94-21, New York University, Leonard N. Stern School of Business, Department of Economics.
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    Citations

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    Cited by:

    1. Jeffrey Frankel & David Parsley & Shang-Jin Wei, 2012. "Slow Pass-through Around the World: A New Import for Developing Countries?," Open Economies Review, Springer, vol. 23(2), pages 213-251, April.
    2. Yanamandra, Venkataramana, 2015. "Exchange rate changes and inflation in India: What is the extent of exchange rate pass-through to imports?," Economic Analysis and Policy, Elsevier, vol. 47(C), pages 57-68.
    3. Mallick, Sushanta & Marques, Helena, 2012. "Pricing to market with trade liberalization: The role of market heterogeneity and product differentiation in India’s exports," Journal of International Money and Finance, Elsevier, vol. 31(2), pages 310-336.
    4. Guillaume Gaulier & Amina Lahrèche-Révil & Isabelle Méjean, 2006. "Structural Determinants of the Exchange-Rate Pass-Through," Working Papers 2006-03, CEPII research center.
    5. Sarah Guillou & Stefano Schiavo, 2010. "Export Prices and Increasing World Competition: Evidence from French, German, and Italian Pricing Behaviour," Chapters,in: Innovation, Economic Growth and the Firm, chapter 10 Edward Elgar Publishing.
    6. Guillaume Gaulier & Amina Lahrèche-Révil & Isabelle Méjean, 2008. "Exchange-rate pass-through at the product level," Canadian Journal of Economics, Canadian Economics Association, vol. 41(2), pages 425-449, May.
    7. Sarah Guillou & Stefano Schiavo, 2010. "Export Prices and Increasing World Competition: Evidence from French, German, and Italian Pricing Behaviour," Chapters,in: Innovation, Economic Growth and the Firm, chapter 10 Edward Elgar Publishing.
    8. Craig R. Parsons & Kiyotaka Sato, 2008. "New estimates of exchange rate pass-through in Japanese exports An earlier version of this paper was presented at the 10th International Convention of the East Asian Economic Association in Beijing, C," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 13(2), pages 174-183.
    9. repec:spo:wpecon:info:hdl:2441/6123 is not listed on IDEAS

    More about this item

    JEL classification:

    • F30 - International Economics - - International Finance - - - General
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission

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