Goods Prices and Exchange Rates: What Have We Learned?

50 Pages Posted: 2 Sep 2000 Last revised: 4 Oct 2010

See all articles by Pinelopi Goldberg

Pinelopi Goldberg

Yale University - Department of Economics; National Bureau of Economic Research (NBER); Yale University - Cowles Foundation

Michael M. Knetter

University of Wisconsin - Madison - School of Business; National Bureau of Economic Research (NBER)

Date Written: December 1996

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.

Suggested Citation

Goldberg, Pinelopi (Penny) and Knetter, Michael M., Goods Prices and Exchange Rates: What Have We Learned? (December 1996). NBER Working Paper No. w5862. Available at SSRN: https://ssrn.com/abstract=225647

Pinelopi (Penny) Goldberg (Contact Author)

Yale University - Department of Economics ( email )

P.O. Box 208268
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New Haven, CT 06520-8268
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National Bureau of Economic Research (NBER)

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Yale University - Cowles Foundation

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New Haven, CT 06520-8281
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Michael M. Knetter

University of Wisconsin - Madison - School of Business ( email )

975 University Avenue
Madison, WI 53706
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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