NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Pricing to Market when the Exchange Rate Changes

Paul Krugman

NBER Working Paper No. 1926
Issued in May 1986
NBER Program(s):   ITI   IFM

It has been widely remarked that US import prices have not fully reflected movements in the exchange rate. This paper begins with an investigation of the actual extent of "pricing to market" by foreign suppliers. It shows that pricing to market is a real phenomenon, but not universal; in particular, evidence on German export prices suggests that stickiness of import prices is largely confined to machinery and transport equipment. The paper then considers a number of possible models. While the evidence is not sufficient to distinguish among thesemodels, it seems probable that a full explanation will involve both dynamics and imperfect competition.

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Document Object Identifier (DOI): 10.3386/w1926

Published: Arndt, Sven W. and J. David Richardson (eds.) Real-financial linkages among open economies. Cambridge, MA and London: MIT Press, 1987.

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