TY  - JOUR
AU  - Goldberg,Pinelopi K.
AU  - Hellerstein,Rebecca
TI  - A Framework for Identifying the Sources of Local-Currency Price Stability with an Empirical Application
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 13183
PY  - 2007
Y2  - June 2007
UR  - http://www.nber.org/papers/w13183
L1  - http://www.nber.org/papers/w13183.pdf
N1  - Author contact info:
Pinelopi K. Goldberg
Professor of Economics
Princeton University
Department  of Economics
306 Fisher Hall
Princeton, NJ 08544-1021
Tel: (609) 258-4016
Fax: (609) 258-6419
E-Mail: pennykg@princeton.edu

Rebecca Hellerstein
International Research
Federal Reserve Bank of New York
33 Liberty Street
New York, NY  10045
E-Mail: Rebecca.Hellerstein@ny.frb.org
AB  - 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.
ER  -