Distribution Costs and Real Exchange Rate Dynamics During Exchange-Rate-Based-Stabilizations

51 Pages Posted: 25 Aug 2000 Last revised: 18 Oct 2010

See all articles by Ariel T. Burstein

Ariel T. Burstein

University of California, Los Angeles (UCLA) - Department of Economics

Joao C. Neves

Catholic University of Portugal (UCP) - Faculty of Economic Science and Business Studies

Sergio T. Rebelo

Northwestern University - Kellogg School of Management; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Date Written: August 2000

Abstract

This paper studies the role played by the distribution sector in shaping the behavior of the real exchange rate during exchange-rate-based-stabilizations. We use data for the U.S. and Argentina to document the importance of distribution margins in retail prices and disaggregated price data to study price dynamics in the aftermath of Argentina's 1991 Convertibility plan. Distribution services require local labor and land so they drive a natural wedge between retail prices in different countries. We study in detail the impact of introducing a distribution sector in an otherwise standard model of exchange-rate-based-stabilizations. We show that this simple extension improves dramatically the ability of the model to rationalize observed real exchange rate dynamics.

Suggested Citation

Burstein, Ariel T. and das Neves, João Luís César and Tavares Rebelo, Sergio, Distribution Costs and Real Exchange Rate Dynamics During Exchange-Rate-Based-Stabilizations (August 2000). NBER Working Paper No. w7862. Available at SSRN: https://ssrn.com/abstract=238878

Ariel T. Burstein

University of California, Los Angeles (UCLA) - Department of Economics ( email )

Box 951477
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Los Angeles, CA 90095-1477
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310-206-6732 (Phone)
310-825-9528 (Fax)

João Luís César Das Neves

Catholic University of Portugal (UCP) - Faculty of Economic Science and Business Studies ( email )

Lisboa, 1600
Portugal
+351 21 727 4270 (Phone)
+351 21 721 0252 (Fax)

Sergio Tavares Rebelo (Contact Author)

Northwestern University - Kellogg School of Management ( email )

2001 Sheridan Road
Leverone Hall
Evanston, IL 60208
United States
847-467-2329 (Phone)
847-491-5719 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
United States

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