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Abstract

Recent analyses of transaction-level data sets have generated new stylized facts on price setting and greatly influenced the empirical open- and closed-economy macroeconomics literatures. This work has uncovered marked heterogeneity in price stickiness, demonstrated that even non-zero price changes do not fully “pass through” exchange rate shocks, and offered evidence of synchronization in the timing of price changes. Further, intrafirm prices have been shown to differ from arm's length prices in each of these characteristics. This paper develops a state-dependent model of price setting by strategic intermediate goods producers that anticipate and respond to their competitors' actions. The model, which allows for both arm's length and intrafirm transactions, is able to generate all of these empirical pricing patterns.

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File URL: http://www.sciencedirect.com/science/article/pii/S0022199611000511
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Bibliographic Info

Article provided by Elsevier in its journal Journal of International Economics.

Volume (Year): 85 (2011)
Issue (Month): 1 (September)
Pages: 1-13

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Handle: RePEc:eee:inecon:v:85:y:2011:i:1:p:1-13

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Web page: http://www.elsevier.com/locate/inca/505552

Related research

Keywords: Exchange rate passthrough Price stickiness Dynamic oligopoly Intrafirm trade;

Other versions of this item:

Find related papers by JEL classification:

• E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
• F1 - International Economics - - Trade
• L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

References

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Cited by:

1. Neiman, Brent, 2010. "Stickiness, synchronization, and passthrough in intrafirm trade prices," Journal of Monetary Economics, Elsevier, vol. 57(3), pages 295-308, April.

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