Market Structure and the Persistence of Sectoral Real Exchange Rates

Yin-Wong Cheung, Menzie Chinn and Eiji Fujii

No 7408, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We examine the relationship between market structure and the persistence of U.S. dollar-based sectoral real exchange rates for fourteen OECD countries. Our empirical results based on disaggregated data suggest that differences in market structure significantly determine the rates at which deviations from sectoral purchasing power parity decay. Specifically, industries with a larger price-cost margin are found to exhibit slower parity reversion of their sectoral real exchange rates. Further, as the degree of intra-industry trade activity increases, sectoral real exchange rate persistence becomes more pronounced. These findings imply that an imperfectly competitive market structure contributes to the well-documented persistence in real exchange rates.

JEL-codes: F31 F40 (search for similar items in EconPapers)
Date: 1999-10
New Economics Papers: this item is included in nep-ifn, nep-ind and nep-mon
Note: IFM
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (21)

Published as Cheung, Yin-Wong and Kon S. Lai, "Mean Reversion in Real Exchange Rates," Economics Letters, Vol. 46, no. 3 (November 1994): 251-256
Published as Cheung, Yin-Wong and Kon S. Lai, "Economic Growth and Stationarity of Real Exchange Rates: Evidence from Some Fast-Growing Asian Countries," Pacific-Basin Finance Journal, Vol. 6, no. 1/2 (May 1998): 61-76
Published as Cheung, Yin-Wong and Kon S. Lai, "On Cross-country Differences in the Persistence of Real Exchange Rates," Journal of International Economics, Vol. 50, no. 2, (April 2000): 375-397
Published as International Journal of Finance & Economics, Vol. 6, no. 2 (April 2002): 95-114

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Journal Article: Market Structure and the Persistence of Sectoral Real Exchange Rates (2001)
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