Working Paper: NBER ID: w12861
Authors: Andrew Atkeson; Ariel Burstein
Abstract: We study the implications for international relative prices of a simple Ricardian model of international trade with imperfect competition and variable markups, providing a tractable account of firm-level and aggregate prices. We show that both trade costs and imperfect competition with variable markups are needed to account for pricing-to-market at the firm and aggregate levels. We also show that international trade costs are essential, but pricing-to-market is not, to account for a high volatility of tradeable consumer prices relative to the overall CPI-based real-exchange rate.
Keywords: Pricing-to-market; Ricardian model; International trade; Imperfect competition; Variable markups
JEL Codes: E31; F1; F12; F41
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Trade costs (F19) | pricing-to-market (L11) |
| Imperfect competition with variable markups (D43) | pricing-to-market (L11) |
| International trade costs (F19) | high volatility of tradeable consumer prices (E30) |
| pricing-to-market (L11) | high volatility of tradeable consumer prices (E30) |