International Price Dispersion in State-Dependent Pricing Models: Theory and Evidence
Studies of disaggregated price data document a robust, positive relationship between nominal exchange rate (NER) volatility and the variability of relative prices for cities separated by national borders. This relationship is interpreted as evidence of sticky prices. This paper shows that a state-dependent sticky price model implies a U-shaped rather than monotonic relationship between relative price variability and nominal exchange rate volatility. In relatively calm environments, higher NER volatility lowers relative price variability as firms adjust more frequently. Only when exchange rate volatility is sufficiently large and firms adjust almost instantaneously, does higher nominal exchange rate volatility cause more variable relative prices. We provide empirical support for this result using a novel dataset of homogeneous goods prices collected in Eastern Europe during 1998-2002. Relative price variability is increasing in nominal exchange rate volatility during the years of the Russian financial crisis, but is falling in NER in the calmer years that follow
To our knowledge, this item is not available for
download. To find whether it is available, there are three
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page whether it is in fact available.
3. Perform a search for a similarly titled item that would be available.
|Date of creation:||2004|
|Date of revision:|
|Contact details of provider:|| Postal: |
Web page: http://www.EconomicDynamics.org/society.htm
More information through EDIRC
When requesting a correction, please mention this item's handle: RePEc:red:sed004:206. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christian Zimmermann)
If references are entirely missing, you can add them using this form.