A JOINT TEST OF PRICING-TO-MARKET, MENU COST AND CURRENCY INVOICING

This paper investigates PTM behaviour and currency invoicing decisions of Canadian pork exporters in the presence of menu costs. It is shown that when export prices are negotiated in the exporter'’s currency, menu costs cause threshold effects in the sense that there are bounds within (outside of) which PTM is not (is) observed. Conversely, PTM is not interrupted by menu costs when export prices are denominated in the importer'’s currency. The empirical model focuses on pork meat exports from Canada to the U.S. and Japan. Hansen’'s (2000) threshold estimation procedure is used to jointly test for currency invoicing and PTM in the presence of menu costs. Inference is conducted using bootstrap methods. PTM effects are smaller when accounting for currency invoicing decisions and menu costs than under standard linear models. The data does not reject the null hypothesis that Quebec pork exporters exercise PTM behaviour in the Japanese market and invoice their sales in Japanese currency. Evidence of PTM behaviour and foreign currency invoicing is weak for the U.S. market. Ontario pork exporters do not exercise PTM behaviour in any market.


Issue Date:
2004
Publication Type:
Conference Paper/ Presentation
PURL Identifier:
http://purl.umn.edu/20295
Total Pages:
28
Series Statement:
Selected Paper




 Record created 2017-04-01, last modified 2017-08-24

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