Sticky Prices, a Volatile Exchange Rate and the Border

Mark David Witte
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Mark David Witte: University of North Carolina at Chapel Hill

International Trade from EconWPA

Abstract: This paper introduces a method that leads to more accurate estimates of the proportion of the border effect attributable to the nominal price/nominal exchange rate relationship. Employing this method on data from “How Wide is the Border?” (1996), this paper finds that the proportion of the border effect directly attributable to a volatile exchange rate and incomplete pass-through varies from good to good. Some goods have a small proportion of their border effect caused by the nominal price/nominal exchange rate relationship (7%-8%), while other goods have a larger proportion, up to 90%.

Keywords: Law of One Price (LOOP); pass-through; border; sticky price; exchange rate (search for similar items in EconPapers)
JEL-codes: F15 F31 (search for similar items in EconPapers)
Date: 2005-08-26
Note: Type of Document - doc; pages: 23

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