Goods Prices and Exchange Rates: What Have We Learned?

Pinelopi Goldberg and Michael M. Knetter

Journal of Economic Literature, 1997, vol. 35, issue 3, 1243-1272

Abstract: 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.

Date: 1997
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Working Paper: Goods Prices and Exchange Rates: What Have We Learned? (1996)
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