Pricing to Market in Business Cycle Models
AbstractThis paper evaluates the performance of leading micro-founded pricing-to-market frictions vis-a-vis a set of robust stylized facts about international prices. In order to make that evaluation meaningful, we embed each friction into a unified IRBC framework and parameterize the models in a uniform way. Our goal is to evaluate the broad-based applicability of these frictions for policy-oriented DSGE modeling by documenting their strengths and weaknesses. We make three points: (i) the mechanisms generating pricing to market are not always neutral to business cycle dynamics of quantities, (ii) some mechanisms require producer markups at least 50% to account for the full range of estimates of the empirical exchange rate pass-through to export prices of 35%-50%, (iii) some frictions crucially depend on a particular driver of uncertainty in the underlying model.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 22513.
Date of creation: 17 Mar 2010
Date of revision:
pricing to market; law of one price; incomplete pass-through; international correlations; international business cycle; sticky prices; pass-through coefficient;
Find related papers by JEL classification:
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
- F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
- F31 - International Economics - - International Finance - - - Foreign Exchange
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-05-15 (All new papers)
- NEP-CBA-2010-05-15 (Central Banking)
- NEP-DGE-2010-05-15 (Dynamic General Equilibrium)
- NEP-MAC-2010-05-15 (Macroeconomics)
- NEP-OPM-2010-05-15 (Open Economy Macroeconomics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- George Alessandria, 2005. "Consumer search, price dispersion, and international relative price volatility," Working Papers 05-9, Federal Reserve Bank of Philadelphia.
- Morten Ravn & Stephanie Schmitt-Grohe & Martin Uribe, 2006.
"Pricing to Habits and the Law of One Price,"
NBER Working Papers
12731, National Bureau of Economic Research, Inc.
- Morten O. Ravn & Stephanie Schmitt-Grohé & Martín Uribe, 2007. "Pricing to Habits and the Law of One Price," American Economic Review, American Economic Association, American Economic Association, vol. 97(2), pages 232-238, May.
- Morten O. Ravn & Stephanie Schmitt-Grohe & Martin Uribe, 2006. "Pricing to Habits and the Law of One Price," Economics Working Papers, European University Institute ECO2006/40, European University Institute.
- Ravn, Morten O. & Schmitt-Grohé, Stephanie & Uribe, Martín, 2007. "Pricing to Habits and the Law of One Price," CEPR Discussion Papers, C.E.P.R. Discussion Papers 6030, C.E.P.R. Discussion Papers.
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