Pricing-to-Market, Trade Costs, and International Relative Prices

Atkeson, Andrew; Burstein, Ariel

doi:10.1257/aer.98.5.1998

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American Economic Review: Vol. 98 No. 5 (December 2008)

AER Volume. 98, Issue 5 | left

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Pricing-to-Market, Trade Costs, and International Relative Prices

Article Citation

Atkeson, Andrew, and Ariel Burstein. 2008. "Pricing-to-Market, Trade Costs, and International Relative Prices." American Economic Review, 98(5): 1998-2031.

DOI: 10.1257/aer.98.5.1998

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)

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Authors

Atkeson, Andrew (UCLA)
Burstein, Ariel (UCLA)

JEL Classifications

F12: Models of Trade with Imperfect Competition and Scale Economies
F14: Country and Industry Studies of Trade
F31: Foreign Exchange