Abstract

This chapter estimates the extent of Pricing to Market (PTM) for Japanese automobiles exported to the US market over the 1987-2000 period. The price data used is the annual, model-specific, manufacturer’s suggested retail price (MSRP) of identical cars (17 models in total), all made in Japan, but sold in both the US and Japan. These prices ratios (of foreign over domestic) are regressed on the real exchange rate, real wages and US and Japanese real GNI as in the seminal work of Marston (1990) which originally used industry level price data. As with Marston, I find a high degree of PTM behavior, indeed over 100% PTM, somewhat higher than Marston (1990). Moreover, it appears that this PTM behavior has fallen somewhat over time. This implies increasing exchange rate pass-through, contrary to Taylor’s (2000) conjecture.