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Trade liberalisation and import price behaviour: the case of textiles and wearing apparels




Previous studies on the relationship between exchange rates and traded goods prices typically find evidence of incomplete pass-through, usually explained by pricing-to-market behaviour. Although economic theory predicts that incomplete pass-through may also be linked to presence of non-tariff barriers to trade, variables reflecting such a link is rarely included in existing empirical models. In this paper, we estimate a pricing-to-market model for Norwegian import prices on textiles and wearing apparels, controlling explicitly for the removal of non-tariff barriers to trade and the shift in imports from high-cost to low-cost countries through a Törnqvist price index based measure of foreign prices. We show that this measure of foreign prices unlike standard measures used in the literature is likely to produce unbiased estimates of the degree of pass-through, and thereby also the extent of pricing-to-market behaviour. Finally, we demonstrate that the estimated import price equation is reasonably stable and exhibits no serious forecasting failures. These findings contradict the hypothesis that pass-through has changed alongside trade policy shifts during the second half of the 1990s and the monetary policy regime shift in 2001.

Suggested Citation

  • Andreas Benedictow & Pål Boug, 2010. "Trade liberalisation and import price behaviour: the case of textiles and wearing apparels," Discussion Papers 605, Statistics Norway, Research Department.
  • Handle: RePEc:ssb:dispap:605

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    References listed on IDEAS

    1. Jan F. Bjørnstad & Elinor Ytterstad, 2008. "Two-stage sampling from a prediction point of view when the cluster sizes are unknown," Biometrika, Biometrika Trust, vol. 95(1), pages 187-204.
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    1. repec:rfe:zbefri:v:35:y:2017:i:1:p:73-95 is not listed on IDEAS

    More about this item


    Trade liberalisation; import prices; pricing-to-market; exchange rate pass-through; vector autoregressive models.;

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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