Questionning pricing-to-market linearity: partial sum decomposition approach applied to beer exports
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Pricing decisions of exporters, who are facing imperfect competition in their destination markets, might depend on exchange rate changes. While empirical literature often assumes that the impact of the exchange rate on the exporters’ prices is linear and the markup adjustment does not depend on magnitude or direction of the exchange rate, we question this statement and test for hysteresis and asymmetry of pricing-to-market (PTM). By means of the partial sum decomposition approach of Shin et al. (2013) using the beer market as an example, we show that both types of nonlinearities play an important role in PTM decisions.