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Pricing-to-market, staggered contracts, and real exchange rate persistence
By : Pricing,market, staggered, contracts, real, exchange, rate, persistence, ELSEVIER (Paul R. Bergin, Robert C. Feenstra)
Created : 2010-06-30, with 1 files
Keyword : Pricing-to-market, staggered, contracts, real, exchange, rate,persistence
Url : http://www.elsevier.nl / locate /econbase
This paper explores an explanation for the high degree of persistence and volatility
observed in real exchange rate data. In particular, it considers a class of preferences that are
translogin form, which exhibit the property that the elasticity of demand is not constant.
This property is shown to be important for generating pricing-to-market behavior in
price-setting firms and for helping staggered contracts to generate endogenous persistence.
The paper finds that translog preferences generate significantly greater persistence in the
real exchange rate than does the standard CES specification. While the model cannot fully
reproduce the high level of persistence observed in the data under plausible parameter
values, it can reproduce the level of volatility.2001 Elsevier Science B.V. All rights
reserved.
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