Competition and Relative Prices when the Exchange Rate Changes: Evidence from Exporting Companies
Year: 2008 Volume: 58 Issue: 1 -2 Pages: 38-56
Abstract: In this paper we show the relevance of the degree of competition for inferences about changes in export-production relative prices when the nominal exchange rate changes. We devise a model for tradable goods that combines the market competition and the pricing-to-market literature and we empirically document the contrast between perfectly and imperfectly competitive markets for the export-production relative price responses to exchange rate changes. When the macroeconomic view is taken, a change in the degree of competition in exports (a change in the average mark-up on exported products) alternates the reaction in relative prices and quantity exported and thus requires careful policy-related consideration.
JEL classification: C33, D4, F31, F41
Keywords: degree of competition, exchange rate, pricing-to-market
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