International price dispersion in state-dependent pricing models

Virgiliu Midrigan

    Research output: Contribution to journalArticle

    Abstract

    Menu-cost models predict a hump-shaped relationship between real and nominal exchange rate volatility. The hump occurs at higher values of nominal exchange rate volatility, the higher trade costs and lower international substitution elasticities are. These predictions accord well with the negative relationship between relative price and nominal exchange rate volatility I document using a data set of prices collected in Eastern Europe in a volatile environment. In contrast, trade costs must be sufficiently high or international substitution elasticities low in order for the model to account for the positive correlation between real and nominal exchange rate volatility in the aggregate data.

    Original languageEnglish (US)
    Pages (from-to)2231-2250
    Number of pages20
    JournalJournal of Monetary Economics
    Volume54
    Issue number8
    DOIs
    StatePublished - Nov 2007

    Fingerprint

    Nominal exchange rate
    Exchange rate volatility
    Price dispersion
    State-dependent pricing
    Elasticity
    Real exchange rate
    Trade costs
    Substitution
    Menu costs
    Prediction
    Cost model
    Relative prices
    Aggregate data
    Eastern Europe

    Keywords

    • Law of one price
    • Menu costs
    • PPP
    • Trade costs

    ASJC Scopus subject areas

    • Economics and Econometrics
    • Finance

    Cite this

    International price dispersion in state-dependent pricing models. / Midrigan, Virgiliu.

    In: Journal of Monetary Economics, Vol. 54, No. 8, 11.2007, p. 2231-2250.

    Research output: Contribution to journalArticle

    Midrigan, Virgiliu. / International price dispersion in state-dependent pricing models. In: Journal of Monetary Economics. 2007 ; Vol. 54, No. 8. pp. 2231-2250.
    @article{2decce307808490a8a1fca39a86099ea,
    title = "International price dispersion in state-dependent pricing models",
    abstract = "Menu-cost models predict a hump-shaped relationship between real and nominal exchange rate volatility. The hump occurs at higher values of nominal exchange rate volatility, the higher trade costs and lower international substitution elasticities are. These predictions accord well with the negative relationship between relative price and nominal exchange rate volatility I document using a data set of prices collected in Eastern Europe in a volatile environment. In contrast, trade costs must be sufficiently high or international substitution elasticities low in order for the model to account for the positive correlation between real and nominal exchange rate volatility in the aggregate data.",
    keywords = "Law of one price, Menu costs, PPP, Trade costs",
    author = "Virgiliu Midrigan",
    year = "2007",
    month = "11",
    doi = "10.1016/j.jmoneco.2007.06.022",
    language = "English (US)",
    volume = "54",
    pages = "2231--2250",
    journal = "Journal of Monetary Economics",
    issn = "0304-3932",
    publisher = "Elsevier",
    number = "8",

    }

    TY - JOUR

    T1 - International price dispersion in state-dependent pricing models

    AU - Midrigan, Virgiliu

    PY - 2007/11

    Y1 - 2007/11

    N2 - Menu-cost models predict a hump-shaped relationship between real and nominal exchange rate volatility. The hump occurs at higher values of nominal exchange rate volatility, the higher trade costs and lower international substitution elasticities are. These predictions accord well with the negative relationship between relative price and nominal exchange rate volatility I document using a data set of prices collected in Eastern Europe in a volatile environment. In contrast, trade costs must be sufficiently high or international substitution elasticities low in order for the model to account for the positive correlation between real and nominal exchange rate volatility in the aggregate data.

    AB - Menu-cost models predict a hump-shaped relationship between real and nominal exchange rate volatility. The hump occurs at higher values of nominal exchange rate volatility, the higher trade costs and lower international substitution elasticities are. These predictions accord well with the negative relationship between relative price and nominal exchange rate volatility I document using a data set of prices collected in Eastern Europe in a volatile environment. In contrast, trade costs must be sufficiently high or international substitution elasticities low in order for the model to account for the positive correlation between real and nominal exchange rate volatility in the aggregate data.

    KW - Law of one price

    KW - Menu costs

    KW - PPP

    KW - Trade costs

    UR - http://www.scopus.com/inward/record.url?scp=36048995968&partnerID=8YFLogxK

    UR - http://www.scopus.com/inward/citedby.url?scp=36048995968&partnerID=8YFLogxK

    U2 - 10.1016/j.jmoneco.2007.06.022

    DO - 10.1016/j.jmoneco.2007.06.022

    M3 - Article

    VL - 54

    SP - 2231

    EP - 2250

    JO - Journal of Monetary Economics

    JF - Journal of Monetary Economics

    SN - 0304-3932

    IS - 8

    ER -