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|کد مقاله||سال انتشار||تعداد صفحات مقاله انگلیسی||ترجمه فارسی|
|18133||2005||27 صفحه PDF||سفارش دهید|
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Publisher : Elsevier - Science Direct (الزویر - ساینس دایرکت)
Journal : Journal of International Economics, Volume 67, Issue 1, September 2005, Pages 129–155
This paper builds a baseline two-country model of real and monetary transmission in the presence of optimal international price discrimination by firms. Distributing traded goods to consumers requires nontradables, making the price elasticity of demand country-specific and a function of the exchange rate. Profit-maximizing monopolistic firms drive a wedge between prices across countries, optimally dampening the response of import and consumer prices to exchange-rate movements. We derive general equilibrium expressions for the pass-through into import and consumer prices, tracing the differential impact of real and monetary shocks on marginal cost and markup fluctuations through the exchange rate.
Cross-border price differentials are one of the most apparent manifestations that the world economy remains strikingly segmented along national boundaries. A large body of empirical work weighs in against the proposition that goods–market arbitrage is quick and effective in eliminating international price discrepancies for most types of tradable goods and services.1 In particular, prices seem to respond only mildly, if at all, to changes in the nominal exchange rate. Exchange rate pass-through, quite low for consumer prices, is far from complete also for international prices, not only in the short run.2 On the one hand, incomplete exchange rate pass-through is due to destination-specific markup adjustment by firms—which is possible because of market segmentation and may reflect ‘pricing-to-market’ (henceforth PTM) by firms.3 With PTM, high exchange rate volatility implies that buyers across national markets face systematic differences in the prices of identical goods—when expressed in the same currency.4 On the other hand, differences in consumer prices are also due to local currency price stability resulting from the presence of local components in marginal costs, particularly distribution services, which are known to be a significant portion of the retail price of tradables. This paper introduces endogenous PTM and incomplete pass-through into a general equilibrium open-economy model. To facilitate comparison with the literature, we build on the analytical framework of Corsetti and Pesenti, 2001a and Corsetti and Pesenti, 2001b and Obstfeld and Rogoff, 1996 and Obstfeld and Rogoff, 2000. In our model, upstream firms with monopoly power sell tradables to competitive retailers situated in different locations. Because of local-input-intensive distribution services, the elasticity of demand differs across markets for the same good. This way of modelling vertical interaction among firms located in different markets yields several novel results, helping to qualitatively reconcile theoretical predictions with key stylized facts of the international economy. First, deviations from the law of one price at both wholesale and retail level in our model derive endogenously from optimal pricing by monopolistic firms. We characterize optimal price discrimination under the constraint that prices should not provide opportunities for arbitrage across wholesalers and retailers in different market locations. Second, because of optimal cross-border price discrimination, exchange rate pass-through is incomplete—its degree depending on the type of shocks hitting the economy. Third, despite incomplete pass-through, nominal depreciations worsen the terms of trade—consistent with the empirical evidence stressed by Obstfeld and Rogoff (2000) as well as the possibility of expenditure-switching effects. However, as firms optimally insulate local prices from exchange rate movements, the exchange rate may have a lesser impact on the relative prices of domestic and foreign goods, in relation to what is implied by the received view. This is consistent with the reasoning in Krugman (1989), that in the presence of deviations from the law of one price and incomplete pass-through, large swings in the exchange rate may be required to bring about quantity adjustment. Indeed, in our model large movements in the nominal and real exchange rates translate into small changes in consumption, employment and price levels in equilibrium. Furthermore, nominal and real exchange rates, positively correlated, are generally more volatile than fundamentals. A specific contribution of this paper is to marry the insights from the literature on PTM in international trade with open economy macroeconomic models. We derive general equilibrium expressions for the exchange rate pass-through into import and consumer prices, tracing the differential impact of real and monetary shocks on marginal cost and markup fluctuations through their impact on the exchange rate. Our analysis therefore addresses a crucial limitation of partial equilibrium studies of exchange rate pass-through into prices, namely, the fact that nominal and real exchange rate movements are treated as exogenous to firms' marginal cost and revenue. There are several qualified empirical studies that present estimates of exchange rate pass-through coefficients, attempting to control for costs and markups. A recent example is the study by Campa and Goldberg (2004), according to which the average exchange rate pass-through into import prices across OECD countries is of the order of 80% over a 1-year horizon. While our analysis can rationalize these findings, spelling out conditions under which the maintained assumptions underlying the empirical model are valid in general equilibrium, it also shows that an assessment of movements in the import prices or CPI associated to exchange rate fluctuations is by no means trivial. Shocks may move import and consumer prices differently, even in opposite directions, with respect to the exchange rate. This should suggest caution in attributing structural interpretations to low pass-through estimates, say, as an indicator of ‘exchange rate disconnect’ of prices, or in using the coefficients from pass-through regressions to predict the inflationary consequences of particular episodes of exchange rate variability. Our model is in the tradition of the international macroeconomics literature pointing to distribution services as a key reason for the failure of Purchasing Power Parity (henceforth PPP).5Dornbusch (1989), for instance, suggests that these services may provide an explanation for his finding that the price of an identical consumption basket is higher in high-income economies than in low-income ones. Overall, distributive trade accounts for an important share of the retail price of consumption goods: for the US, including wholesale and retail services, marketing, advertising and local transportation, the average distribution margin is as high as 55% (see Anderson and van Wincoop (2004) and Burstein et al., 2003a and Burstein et al., 2003b). In recent years, a number of contributions have included distributive trade in open macro models in order to account for the large differentials in consumer prices, without however deriving any implication for import prices.6 Relative to this literature, we take a step further by modelling market segmentation resulting from vertical interactions between monopolistic producers and retailers, to analyze the implications of distributive trade on the degree of exchange rate pass-through into import prices. We are motivated by the strong evidence of the importance of distribution services and price discrimination in accounting for local currency price stability—such as the one presented by Goldberg and Verboven (2001). Based on comprehensive and detailed data of automobile retail prices in five European countries, these authors show that a 1% change in the nominal exchange rate induces a 0.46% adjustment in the export prices in exporter currency, equivalent to a 0.54 pass-through. They attribute a pass-through between 0.37 and 0.39% to local cost (i.e., nominal wages) in the destination country, while markup adjustment accounts for the rest. The paper is organized as follows. The following section presents the model. Section 3 discusses optimal pricing by monopolistic firms facing country-specific demand elasticities. Section 4 derives general equilibrium implications for the exchange rate pass-through into import and consumer prices. Section 5 presents the novel features of the equilibrium with endogenously segmented markets, analyzing the link between exchange rate determination and the behavior of relative prices. Section 6 concludes.
نتیجه گیری انگلیسی
Many recent contributions stress the importance of placing international price differentials centerstage in open-economy macroeconomic models. In this paper we have shown that, among alternative ways to do so, modelling vertical relationships among firms located in different markets is a promising strategy, as it brings models more closely into line with the reality of large discrepancies in cross-border prices. In our model, due to the presence of downstream retailers, upstream firms with monopoly power may face different demand elasticities in national markets even under symmetric, constant elasticity preferences across countries. Thus, these firms will optimally charge different prices to domestic and foreign dealers—within the limits dictated by the possibility of international arbitrage between wholesale and retail markets. As a consequence, the law of one price fails to hold at both producer and consumer levels, independently of nominal rigidities. Furthermore, as firms optimally adjust markups in the face of demand fluctuations, the response of prices to exchange rate movements is muted at both producer and consumer levels. In general equilibrium, real and monetary shocks will each have a different impact on exchange rate pass-through. Hence, structural interpretations of estimated elasticities call for identifying the sources of exchange rate and price variability. Last, a currency depreciation generally worsens the terms of trade: despite low pass-through the international transmission of monetary shocks can have expenditure-switching effects. Key to our approach is that distributive trade requires local inputs, introducing vertical interactions among firms across national boundaries. It is worth stressing that vertical interactions are not exclusively due to distributive trade. Realistically, local inputs can be employed in some final stage of manufacturing of the final product at local level, combined with traded intermediate goods. Encompassing both distributive trade and manufacturing at local level, the share of the consumer prices that can be attributed to local costs may actually become quite high, potentially reinforcing many of the novel results of our analysis. The model in this paper has been purposely kept simple by means of convenient assumptions. For instance, the elasticity of substitution among types of good is set equal to one, and there is no difference between nontraded goods and distribution services.26 We have also assumed the most basic vertical structure: an upstream monopolist sells its product to a perfectly competitive downstream firm (the retailer). In this case, without distortionary taxation at national level, vertical integration would be completely neutral as regards the equilibrium allocation. An important task for future research is to generalize our setup to richer strategic interactions between upstream and downstream firms (e.g., allowing for non-linear pricing). Most crucially, the evidence suggests that the degree of pass-through is not constant over different time horizons. This evidence calls for building models where optimal markup adjustment interacts with price rigidities, generating dynamics in the degree of local currency price stability.27