Pia Fromlet: National Institute of Economic Research, Postal: National Institute of Economic Research, P.O. Box 3116, SE-103 62 Stockholm, Sweden
Abstract: In this paper, the effects on export prices (in the currency of the exporter) of shocks to the exchange rate, the exporting firms' costs and foreign prices are investigated. The theoretical analysis is done with alternative assumptions regarding the currency in which prices are set and the desired markup. After that, a VAR-framework is used to analyze which theory predicts actual outcome the best. The results indicate that export prices (in the currency of the exporter) respond strongly to exchange rate shocks and the effects seem to be in line with the theory of producer currency pricing and pricing to market. Wage shocks have insignificant effects.
51 pages, November 26, 2013
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