Macroeconomics of International Price Discrimination

Giancarlo Corsetti and Luca Dedola ()

No 3710, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: This Paper builds a baseline two-country model of real and monetary transmission in the presence of optimal international price discrimination by firms. Distributing traded goods to consumers requires non-tradables, intensive in local labour. Because of distributive trade the price elasticity of demand depends on country-specific shocks to productivity and the exchange rate. Hence, within limits dictated by the possibility of arbitrage, profit-maximizing monopolistic firms drive a wedge between prices across countries at both wholesale and retail level. Optimal pricing thus results in possibly large deviations from the law of one price and incomplete pass-through on import prices. Consistent with the received wisdom on international transmission, nominal and real depreciations worsens the terms of trade. In general, the nominal and real exchange rate are more volatile than fundamentals, and large movements in the international prices translate into small changes in consumption, employment and the price level. Finally, we provide an example showing that international policy cooperation may be redundant even when asset trading is ruled out, despite incomplete pass-through and less than optimal risk sharing.

Keywords: Wholesale and retail prices; International cooperation; Exchange rate pass-through; Nominal rigidities (search for similar items in EconPapers)
JEL-codes: F30 F40 (search for similar items in EconPapers)
Date: 2003-01
New Economics Papers: this item is included in nep-ifn, nep-ind and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (55)

Downloads: (external link)
https://cepr.org/publications/DP3710 (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

Related works:
Journal Article: A macroeconomic model of international price discrimination (2005)
Working Paper: Macroeconomics of International Price Discrimination (2003)
Working Paper: Macroeconomics of international price discrimination (2002)
Working Paper: Macroeconomics of international price discrimination (2002)
Working Paper: Macroeconomics of international price discrimination (2002)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:3710

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP3710

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().