NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Market Structure and the Persistence of Sectoral Real Exchange Rates

Yin-Wong Cheung, Menzie D. Chinn, Eiji Fujii

NBER Working Paper No. 7408
Issued in October 1999
NBER Program(s):   IFM

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.

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Document Object Identifier (DOI): 10.3386/w7408

Published:

  • Cheung, Yin-Wong and Kon S. Lai, "Mean Reversion in Real Exchange Rates," Economics Letters, Vol. 46, no. 3 (November 1994): 251-256
  • 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
  • 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
  • International Journal of Finance & Economics, Vol. 6, no. 2 (April 2002): 95-114 citation courtesy of

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