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How Important Are Trade Prices for Trade Flows?

Logan Lewis ()

IMF Economic Review, 2017, vol. 65, issue 3, No 2, 497 pages

Abstract: Abstract US imports and exports respond little to exchange rate changes in the short run. Firms’ pricing behavior is thought central to explaining this response: If local prices do not respond to exchange rates, neither will trade flows. Sticky prices, strategic complementarities, and imported intermediates can reduce the trade response, and they are necessary to match newly available international micro price data. Using trade flow data, I test models designed to match these trade price data. Even with significant pricing frictions, the models imply a stronger trade response to exchange rates than found in the data. Moreover, despite substantial cross-sector heterogeneity, differential responses implied by the model find little to no support in the data.

Keywords: F14; F31; F32; E31 (search for similar items in EconPapers)
Date: 2017
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DOI: 10.1057/s41308-017-0037-1

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