A Framework for Identifying the Sources of Local-Currency Price Stability with an Empirical Application

Pinelopi Goldberg () and Rebecca Hellerstein ()

No 13183, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: The inertia of the local-currency prices of traded goods in the face of exchange-rate changes is a well-documented phenomenon in International Economics. This paper develops a framework for identifying the sources of local-currency price stability. The empirical approach exploits manufacturers' and retailers' first-order conditions in conjunction with detailed information on the frequency of price adjustments in response to exchange-rate changes, in order to quantify the relative importance of markup adjustment by manufacturers and retailers, local-cost non-traded components, and nominal price rigidities, in the incomplete transmission of exchange-rate changes to prices. The approach is applied to micro data from the beer market. We find that on average, 54.1% of the incomplete exchange rate pass-through is due to local non-traded costs; 33.7% to markup adjustment; and 12.2% to the existence of price adjustment costs.

JEL-codes: E30 F10 F30 L10 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba and nep-mac
Date: 2007-06
Note: IFM IO ITI
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Related works:
Working Paper: A Framework for Identifying the Sources of Local-Currency Price Stability with an Empirical Application (2008)
Working Paper: A framework for identifying the sources of local currency price stability with an empirical application (2007)
Working Paper: A Framework for Identifying the Sources of Local-Currency Price Stability with an Empirical Application (2006)
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