Pricing to Market and the Real Exchange Rate

Author/Editor:

Hamid Faruqee

Publication Date:

January 1, 1995

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

This paper investigates the consequences of pricing to market for exchange rate pass-through and real exchange rate dynamics across different patterns of trade under market segmentation. Under two-way, intraindustry trade--where home prices display greater linkage with those of foreign competitors--domestic and export prices exhibit lower pass-through and greater destination-specific adjustment compared to intersectoral trade. With both trade patterns, pricing-to-market behavior intensifies the degree of persistence in the real exchange rate under nominal rigidities, and allows monetary shocks to have permanent effects on relative prices when goods markets remain segmented.

Series:

Working Paper No. 1995/012

Subject:

Currencies Exchange rates Export prices Foreign exchange International trade Money Prices Real exchange rates Trade balance

English

Publication Date:

January 1, 1995

ISBN/ISSN:

9781451842845/1018-5941

Stock No:

WPIEA0121995

Pages:

34

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