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Goods Prices and Exchange Rates: What Have We Learned?

  • Pinelopi K. Goldberg
  • Michael M. Knetter

Import prices typically change by a smaller proportion than the exchange rate between the exporting and importing country. Recent research indicates that common-currency relative prices for similar goods exported to different markets are highly correlated with exchange rates between those markets. This evidence suggests that incomplete pass-through is a consequence of third-degree price discrimination. While distance matters for market segmentation, borders have independent effects. The source of the border effect has not been clearly identified. Furthermore, there is little evidence yet to suggest substantial market power is implied by the observed price discrimination.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 5862.

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Date of creation: Dec 1996
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Publication status: published as Journal of Economic Literature (September 1997): 1243-1272.
Handle: RePEc:nbr:nberwo:5862
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  1. Stephen P. Magee, 1973. "Currency Contracts, Pass-Through, and Devaluation," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 4(1), pages 303-325.
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  3. Gron, Anne & Swenson, Deborah L, 1996. "Incomplete Exchange-Rate Pass-Through and Imperfect Competition: The Effect of Local Production," American Economic Review, American Economic Association, vol. 86(2), pages 71-76, May.
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  16. Dennis W. Carlton, 1987. "The Theory and the Facts of How Markets Clear: Is Industrial Organization Valuable for Understanding Macroeconomics?," NBER Working Papers 2178, National Bureau of Economic Research, Inc.
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  18. 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.
  19. Joseph E. Gagnon & Michael M. Knetter, 1992. "Markup Adjustment and Exchange Rate Fluctuations: Evidence From Panel Data on Automobile Exports," NBER Working Papers 4123, National Bureau of Economic Research, Inc.
  20. Shang-Jin Wei & David C. Parsley, 1995. "Purchasing Power Disparity During the Floating Rate Period: Exchange Rate Volatility, Trade Barriers and Other Culprits," NBER Working Papers 5032, National Bureau of Economic Research, Inc.
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  27. Aw, Bee-Yan, 1993. "Price discrimination and markups in export markets," Journal of Development Economics, Elsevier, vol. 42(2), pages 315-336, December.
  28. Goldberg, Pinelopi Koujianou, 1995. "Product Differentiation and Oligopoly in International Markets: The Case of the U.S. Automobile Industry," Econometrica, Econometric Society, vol. 63(4), pages 891-951, July.
  29. Sven W. Arndt & J. David Richardson, 1987. "Real-Financial Linkages Among Open Economies," NBER Working Papers 2230, National Bureau of Economic Research, Inc.
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