A new approach to tests of pricing-to-market

Byrne, J., Kortava, E. and MacDonald, R. (2013) A new approach to tests of pricing-to-market. Journal of International Money and Finance, 32(1), pp. 654-667. (doi:10.1016/j.jimonfin.2012.06.001)

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Abstract

This study proposes a new approach to tests of pricing-to-market, which defines the responsiveness of export prices to currency movements. Pricing-to-market parameters may be susceptible to time variation, and we account for this in a novel theoretical and empirical contribution to the literature. We extend the benchmark model of pricing-to-market to account for instability in the relationship between export prices and exchange rates. Moreover, using an empirical methodology robust to parameter instability, we examine the forecasting performance of a pricing-to-market model. In doing so we apply a selection of model mis-specification tests robust to varying degrees of parameter evolution to recent aggregate and disaggregate UK export data. Our estimation results provide strong evidence of pricing-to-market and the instability in the response of export prices to exchange rate fluctuations.

Item Type:Articles
Status:Published
Refereed:Yes
Glasgow Author(s) Enlighten ID:Byrne, Dr Joseph and MacDonald, Professor Ronald
Authors: Byrne, J., Kortava, E., and MacDonald, R.
College/School:College of Social Sciences > Adam Smith Business School > Economics
Journal Name:Journal of International Money and Finance
ISSN:0261-5606
Published Online:21 June 2012

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