Pricing-to-Market in a Ricardian Model of International Trade
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.
The views expressed herein are those of the author(s) and do not necessarily reflect the views of the National Bureau of Economic Research.
Andrew Atkeson & Ariel Burstein, 2007. "Pricing-to-Market in a Ricardian Model of International Trade," American Economic Review, American Economic Association, vol. 97(2), pages 362-367, May. citation courtesy of