Working Paper: NBER ID: w1926
Authors: Paul Krugman
Abstract: It has been widely remarked that US import prices have not fully reflected movements in the exchange rate. This paper begins with an investigation of the actual extent of "pricing to market" by foreign suppliers. It shows that pricing to market is a real phenomenon, but not universal; in particular, evidence on German export prices suggests that stickiness of import prices is largely confined to machinery and transport equipment. The paper then considers a number of possible models. While the evidence is not sufficient to distinguish among thesemodels, it seems probable that a full explanation will involve both dynamics and imperfect competition.
Keywords: Pricing to Market; Exchange Rates; Import Prices; International Trade
JEL Codes: F31; F41
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| US import prices (F14) | exchange rate changes (F31) |
| stronger dollar (F31) | decreases in import prices (F14) |
| exchange rate changes (F31) | pricing to market (PTM) (D41) |
| PTM (Y20) | market structure (D49) |
| foreign firms (F23) | higher export prices to the US (F14) |
| pricing behavior (D40) | gray markets (D40) |
| extent of PTM (C60) | macroeconomic analyses (E66) |
| dollar's real appreciation (F31) | pricing divergences (D49) |