Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/210748 
Year of Publication: 
2019
Series/Report no.: 
Staff Report No. 896
Publisher: 
Federal Reserve Bank of New York, New York, NY
Abstract: 
Economists have long suspected that firm-to-firm relationships might lower the responsiveness of prices to shocks due to the use of fixed-price contracts. Using transaction-level U.S. import data, I show that the pass-through of exchange rate shocks in fact rises as a relationship grows older. Based on novel stylized facts about a relationship's life cycle, I develop a model of relationship dynamics in which a buyer-seller pair accumulates relationship capital to lower production costs under limited commitment. The structurally estimated model generates countercyclical markups and countercyclical pass-through of shocks through variation in the economy's rate of relationship creation, which falls in recessions.
Subjects: 
prices
exchange rate
supply chain
trade relationships
JEL: 
E30
E32
F14
L14
Document Type: 
Working Paper

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