Exchange rate dynamics in a model of pricing-to-market

@inproceedings{Betts2000ExchangeRD,
  title={Exchange rate dynamics in a model of pricing-to-market},
  author={Caroline Betts and Michael B. Devereux},
  year={2000}
}
This paper develops a general equilibrium exchange rate model consistent with the weak empirical evidence supporting the law of one price. Some firms segment markets by country, and set prices in local currency of sale, a practice we refer to as pricing-to-market (PTM). The presence of PTM increases exchange rate volatility, relative to a situation where the law of one price holds. PTM also affects the international transmission of monetary and fiscal policy. The higher is the degree of PTM… CONTINUE READING
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