Comments On: Multinationals and Pricing to Market Behavior

Abstract

Knetter uses an ingenious strategy of having period dummies which capture common effects and country dummies which capture institutional effects so that what remains is a coefficient which captures the country specific exchange rate effects of pricing to market. The idea is that the effects of exchange rates on marginal costs have already been controlled through the common factor in the regression so that what remains are the effects of exchange rates that operate via import demand.