Aggregation Problems in Estimates of Armington Elasticities and Pass-Through Effects

Jorge Chami Batista and Nelson Isaac Abrahão Junior
Additional contact information
Jorge Chami Batista: UFRJ
Nelson Isaac Abrahão Junior: FGV

Economia, 2005, vol. 6, issue 2, 329-355

Abstract: This article examines the level of aggregation problem for which Armington price elasticity of substitution and pass-through effects are usually estimated. On the basis of U.S. import data from 1995 to 2004 of wood products from Brazil and Mexico, it is argued that the usuallevels of aggregation used in the estimates for the elasticity of substitution are too high, since they tend to aggregate perfectly elastic products together with products whose elasticities vary from zero to any negative number. Analogously, the elasticity of relative prices with respect to the exchange rate, a measure of the pass-through effect, tends to be underestimated in the U.S. by the presence of homogeneous products whose prices are set in dollars and tend to equalize through arbitrage. Therefore, pricing-to-market estimates may be grossly overestimated for some industries in the U.S.

Keywords: Homogeneous Products; Differentiated Product; Pass-Through; Pricing-to-Market; Law of One Price (search for similar items in EconPapers)
JEL-codes: F10 F14 F31 F32 F41 (search for similar items in EconPapers)
Date: 2005
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://www.anpec.org.br/revista/vol6/vol6n2p329_355.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:anp:econom:v:6:y:2005:i:2:p:329-355

Ordering information: This journal article can be ordered from
Secretaria da ANPEC Rua Prof Marcos Valdemar de Freitas Reis s/n Campus do Campus do Gragoatá, Bloco F Niterói, RJ 24210-201 Brazil
http://www.anpec.org.br/revista/

Access Statistics for this article

Economia is currently edited by Joaquim Pinto de Andrade

More articles in Economia from ANPEC - Associação Nacional dos Centros de Pós-Graduação em Economia [Brazilian Association of Graduate Programs in Economics] Secretaria da ANPEC Rua Prof Marcos Valdemar de Freitas Reis s/n Campus do Campus do Gragoatá, Bloco F Niterói, RJ 24210-201 Brazil. Contact information at EDIRC.
Bibliographic data for series maintained by Rodrigo Zadra Armond ().