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Pricing To Market, Staggered Contracts, And Real Exchange Rate Persistence

Author

Listed:
  • Paul R. Bergin
  • Robert C. Feenstra
Abstract
This paper offers an explanation for the persistence observed in real exchange rate movements. The model combines pricing to market behavior with sticky prices generated by staggered contracts. A translog preference structure is used to enhance both features. The paper finds that openness limits the degree of endogenous persistence. Nevertheless, the model under reasonable parameter values can replicate the serial correlation of real exchange rate data. Further, significant exchange rate volatility can be generated, and this is amplified by the presence of endogenous persistence.

Suggested Citation

  • Paul R. Bergin & Robert C. Feenstra, "undated". "Pricing To Market, Staggered Contracts, And Real Exchange Rate Persistence," Department of Economics 99-01, California Davis - Department of Economics.
    • Handle: RePEc:fth:caldec:99-01
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    File URL: http://www.econ.ucdavis.edu/working_papers/99-1.pdf
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    References listed on IDEAS

    as
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    JEL classification:

    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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