Hysteresis, menu costs, and pricing with random exchange rates

Delgado, Francisco

doi:10.1016/0304-3932(91)90035-m

Cited by 45 publications

(27 citation statements)

References 27 publications

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“…The variable is interpreted as a proxy for exchange rate uncertainty price-setters face. In his dynamic partial equilibrium model of a price-setting firm with menu costs, Delgado (1991) shows that variability of the nominal exchange rate raises the level of uncertainty, and hence, intensifies price stickiness. In other words, firms become less willing to change their prices since the exchange rate may move back after the price change and another price change in the opposite direction may become necessary.…”

Section: The Persistence Of Sectoral Ppp Deviationsmentioning

confidence: 99%

Market structure and the persistence of sectoral real exchange rates

2001

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We examine the relationship between market structure and the persistence of US dollar-based sectoral real exchange rates for 14 OECD countries. Our empirical results based on disaggregated data suggest that differences in market structure significantly determine the rates at which deviations from sectoral purchasing power parity decay. Specifically, industries with a larger price-cost margin are found to exhibit slower parity reversion of their sectoral real exchange rates. Further, as the degree of intra-industry trade activity increases, sectoral real exchange rate persistence becomes more pronounced. These findings suggest that an imperfectly competitive market structure contributes to the well-documented persistence in real exchange rates.

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Section: The Persistence Of Sectoral Ppp Deviationsmentioning

confidence: 99%

Market structure and the persistence of sectoral real exchange rates

2001

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“…For a survey of literature on the relationship between the menu cost and the degree of nominal price rigidity, seeBall and Romer (1989);Mankiw (1985), andDelgado (1991), among others. 7 Studies, such asVerleger (1982a,b), confirm the view that official price does indeed follow the spot prices over time with a varying degree of speed of adjustment.…”

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confidence: 99%

The empirical role of the exchange rate on the crude-oil price formation

2004

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“…This allows us to isolate the effects of a border, meaning an exchange rate, in the performance of PPP. Delgado (1991) shows that in the presence of sticky prices, driven by menu costs, real exchange rates may contain unit roots. 3 The reason is that changes in nominal exchange rates, which often result from factors in financial markets as opposed to goods markets, are not immediately or even eventually passed through to nominal prices.…”

Section: Introductionmentioning

confidence: 99%

Cities, Borders, Distances, Non‐Traded Goods and Purchasing Power Parity

Jenkins

1997

Oxf Bull Econ Stat

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Most empirical studies for the post Bretton‐Woods period fail to find evidence of a long‐run Purchasing Power Parity (PPP) relationship. An investigation into the failure of PPP is made in this study by using disaggregated price data. This disaggregation is on two levels: location (prices from US and Canadian cities rather than national aggregates) and type of goods (e.g., fuel oil, a tradable commodity and local public transportation, a non‐tradable). This disaggregation allows for the testing of the importance of borders (implying an exchange rate), distances, and types of goods in the failure of PPP. The analysis conducted suggests that both country borders and distances play a significant role. However, there is mixed evidence concerning type of goods as an important determinant of the failure of PPP.

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Hysteresis, menu costs, and pricing with random exchange rates

Cited by 45 publications

References 27 publications

Market structure and the persistence of sectoral real exchange rates

Market structure and the persistence of sectoral real exchange rates

The empirical role of the exchange rate on the crude-oil price formation

Cities, Borders, Distances, Non‐Traded Goods and Purchasing Power Parity

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