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

Pinelopi Goldberg and Rebecca Hellerstein

No 1161, Working Papers from Princeton University, Department of Economics, Center for Economic Policy Studies.

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.

Keywords: currency prices; exchange rates (search for similar items in EconPapers)
JEL-codes: C01 E50 F13 F32 G10 (search for similar items in EconPapers)
Date: 2008-03
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (20)

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https://gceps.princeton.edu/wp-content/uploads/2017/01/185goldberg.pdf

Related works:
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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Persistent link: https://EconPapers.repec.org/RePEc:pri:cepsud:185

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