In this paper we show the relevance of the degree of competition for inferences about changes in export-production relative prices when the nominal exchange rate changes. We devise a model for tradable goods that combines the market competition and the pricing-to-market literature and we empirically document the contrast between perfectly and imperfectly competitive markets for the export-production relative price responses to exchange rate changes. When the macroeconomic view is taken, a change in the degree of competition in exports (a change in the average mark-up on exported products) alternates the reaction in relative prices and quantity exported and thus requires careful policy-related consideration.
Keywords: Degree of competition, exchange rate, pricing-to-market.
Issued: December 2006
Published as: Podpiera, J. and M. Rakova (2008): Competition and Relative Prices when the Exchange Rate Changes: Evidence from Exporting Companies, Finance a úvěr - Czech Journal of Economics and Finance, 58(1-2), pp. 38-56.
Download CNB WP No. 10/2006 (pdf, 384 kB)