Sticky Borders

“Sticky Borders" with Gita Gopinath

The stickiness of traded goods prices and the currency in which prices are sticky play a central role in international macroeconomics. Despite the existence of a rich theoretical literature, there is very little empirical evidence that directly measures the extent of price stickiness in traded goods prices. To address these questions, we use unpublished micro data on import and export prices at-the-dock for the United States for the period 1994-2005. We present three main results: First, the trade weighted average price duration in dollars is 12.26 months for imports and 13.77 months for exports. This level of stickiness is about twice as high as recent evidence on retail goods prices. The fact that both imports and exports are sticky in dollars suggests that contrary to theory there is producer currency pricing in U.S. exports and local currency pricing in U.S. imports. Second, there is tremendous heterogeneity in price duration across goods, with differentiated goods adjusting prices far less frequently than homogenous goods. Further, the degree of stickiness does not change dramatically with exchange rate volatility. Third, we document that the degree of stickiness in import prices has been increasing throughout the last 10 years, with very little of this decline explained by a compositional shift from homogenous to differentiated goods.

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