International Menu Costs and Price Dynamics

No 79, Working Papers from Brandeis University, Department of Economics and International Business School

Abstract: In this paper, I analyze how the pricing behavior of firms systematically differs across domes- tic and export markets in terms of frequency, timing and size of price changes. First, I contrast domestic and export pricing decisions for the same products showing that (i) domestic producer prices change approximately twice as often as export producer prices, (ii) the probability of syn- chronized price adjustment across markets is 21% for upwards adjustments and 14% for downwards adjustments, (iii) the size of export price changes is substantially larger than the size of domes- tic price changes and (iv) there are strong seasonality effects in the data including a year-end synchronization effect. Second, I show that economic fundamentals such as inflation, productiv- ity, demand, exchange rates and market structure can only partially explain adjustment decisions and cross-market synchronization. Third, I present a dynamic menu cost model of price-setting, and attribute the remaining unexplained part in adjustment decisions to di erences in menu costs across countries. I calculate the implied export and domestic market menu costs from the data and estimate that export menu costs are 1.5% of period steady state revenues and three times as large as domestic market menu costs.

Keywords: International Price Dynamics; U.S. Producer Prices; Export Prices; Menu Costs; Synchronization (search for similar items in EconPapers)
JEL-codes: E3 F41 F42 L16 (search for similar items in EconPapers)
Pages: 66 pages
Date: 2010-09
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (27)

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http://www.brandeis.edu/economics/RePEc/brd/doc/Brandeis_WP79.pdf First version, 2014 (application/pdf)

Related works:
Journal Article: International Menu Costs and Price Dynamics (2017)
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