Working Paper: NBER ID: w18829
Authors: Ariel Burstein; Gita Gopinath
Abstract: We survey the recent empirical and theoretical developments in the literature on the relation between prices and exchange rates. After updating some of the major findings in the empirical literature we present a simple framework to interpret this evidence. We review theoretical models that generate insensitivity of prices to exchange rate changes through variable markups, both under flexible prices and nominal rigidities, first in partial equilibrium and then in general equilibrium.
Keywords: International Prices; Exchange Rates; Purchasing Power Parity; Exchange Rate Pass-Through
JEL Codes: E3; F12; F15; F4
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| nominal exchange rates (F31) | real exchange rates (F31) |
| nominal exchange rates (F31) | border prices (F55) |
| border prices (F55) | consumer prices (P22) |
| nominal exchange rates (F31) | consumer prices (P22) |
| exchange rate fluctuations (F31) | pricing strategies of exporters (F14) |
| pricing-to-market behavior (L11) | deviations from relative PPP (F31) |