Working Paper: CEPR ID: DP2944
Authors: Ariel T. Burstein; Joao C. Neves; Sergio Rebelo
Abstract: This Paper studies the role played by distribution costs in shaping the behaviour of the real exchange rate during exchange-rate-based stabilizations. We document that distribution costs are very large for the average consumer good: the represent more than 40% of the retail price in the US and 60% of the retail price in Argentina. Distribution services require local labour and so so they drive a natural wedge between retail prices in different countries. We show that introducing a distribution sector in an otherwise standard model of exchange-rate-based stabilizations dramatically improves its ability to rationalise observed real exchange rate dynamics.
Keywords: distribution; fixed exchange rates; inflation; real exchange rate; stabilization
JEL Codes: F41
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Higher distribution costs (D39) | Greater discrepancies in retail prices between countries (F61) |
| Greater discrepancies in retail prices between countries (F61) | Affects the real exchange rate (F31) |
| Higher distribution costs (D39) | Affects the real exchange rate (F31) |