(A)symmetry, (Non)linearity and Hysteresis of Pricing-To-Market: Evidence from German Sugar Confectionery Exports

Abstract

Abstract: Pricing-to-market (PTM) is often reported to be adopted by exporters, who have invested in their presence on international markets and are interested in keeping and developing their market shares. Then, a markup adjustment is used to partially offset changes of the exchange rate, which are unfavorable for their foreign customers, in order to keep the price level in the importer’s currency relatively unchanged. With only few exceptions, empirical literature often considers PTM adjustments to be linear and symmetric. If asymmetry is allowed, PTM is often regarded as contemporaneous, which is a very simplifying assumption, given the goals pursued by exporters employing PTM strategies. This paper applies the dynamic autoregressive distributed lag (ADRL) approach popularized by Pesaran, Shin, and Smith (2001) and its nonlinear extension by Shin, Yu, and Greenwood-Nimmo (2011) to the data of German sugar confectionery exports to various destination markets. It turns out that in the long-run PTM is neither linear nor symmetric.