NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Goods Prices and Exchange Rates: What Have We Learned?

Pinelopi K. Goldberg, Michael M. Knetter

NBER Working Paper No. 5862
Issued in December 1996
NBER Program(s):   IFM   ITI

Import prices typically change by a smaller proportion than the exchange rate between the exporting and importing country. Recent research indicates that common-currency relative prices for similar goods exported to different markets are highly correlated with exchange rates between those markets. This evidence suggests that incomplete pass-through is a consequence of third-degree price discrimination. While distance matters for market segmentation, borders have independent effects. The source of the border effect has not been clearly identified. Furthermore, there is little evidence yet to suggest substantial market power is implied by the observed price discrimination.

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Document Object Identifier (DOI): 10.3386/w5862

Published: Journal of Economic Literature (September 1997): 1243-1272.

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