An empirical study of world market influences on price formation in West Germany

In this paper price and wage determination is analyzed for 35 industries in West-Germany. Tests are made to classify industries as being competitive, discriminatory or sheltered. The chosen approach is related to the “Scandinavian” model. It is shown that about a third of the industries in the sample are not price takers in spite of international trade. Wages are strongly influenced by world market and exchange rate developments. As to the effectiveness of revaluations the results imply that, first, revaluations do provide a protection against imported inflation. Second, revaluations can be expected to produce real effects since they affect the relative price between competitively and non-competitively produced commodities and the terms of trade.