Firms’ Heterogeneity, Incomplete Information, and Pass-Through

Stefania Garetto

No wp2016-004, Boston University - Department of Economics - Working Papers Series from Boston University - Department of Economics

Abstract: A large body of empirical work documents that prices of traded goods change by a smaller proportion than real exchange rates between the trading countries (incomplete pass-through). I present a Ricardian model of trade and international price-setting with heterogeneous firms, Bertrand competition and incomplete information. The model implies that: 1) firm-level pass- through is incomplete and a U-shaped function of firm-level productivity and market share; and 2) controlling for firm market share, producers operating under incomplete information, like for example new entrants in a market, exhibit lower pass-through rates than producers operating under complete information. Estimates from a panel data set of cars prices support the predictions of the model.

Keywords: Heterogeneous firms; incomplete information; incomplete pass-through (search for similar items in EconPapers)
JEL-codes: D44 F12 F31 L13 (search for similar items in EconPapers)
Date: 2016-04-18
New Economics Papers: this item is included in nep-bec, nep-com, nep-int and nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (13)

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