Pricing-to-Market, Trade Costs, and International Relative Prices
Andrew Atkeson, Ariel Burstein
American Economic Review · 2008 · Volume 98 · Issue 5
Abstract
International relative prices across industrialized countries show large and systematic deviations from relative purchasing power parity. We embed a model of imperfect competition and variable markups in a quantitative model of international trade. We find that when our model is parameterized to match salient features of the data on international trade and market structure in the United States, it can reproduce 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. (JEL F12, F14, F31)
Keywords
Models of Trade with Imperfect Competition and Scale Economies, Country and Industry Studies of Trade, Foreign Exchange
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