Pricing-to-market, trade costs, and international relative prices

Andrew Atkeson and Ariel Tomas Burstein

No 2007-26, Working Paper Series from Federal Reserve Bank of San Francisco

Abstract: Data on international relative prices from industrialized countries show large and systematic deviations from relative purchasing power parity. We embed a model of imperfect competition and variable markups in some of the recently developed quantitative models of international trade to examine whether such models can reproduce the main features of the fluctuations in international relative prices. We find that when our model is parameterized to match salient features of the data on international trade and market structure in the U.S., it reproduces deviations from relative purchasing power parity similar to those observed in the data because firms choose to price-to-market. We then examine how pricing-to-market depends on the presence of international trade costs and various features of market structure.

Keywords: Prices; Pricing; Macroeconomics - Econometric models (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-dge and nep-int
Date: 2007
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Related works:
Working Paper: Pricing-to-market, trade costs, and international relative prices (2008)
Journal Article: Pricing-to-Market, Trade Costs, and International Relative Prices (2008)
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