Drozd, Lukasz A. and Nosal, Jaromir B. (2010): Pricing to Market in Business Cycle Models.
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This 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.
|Item Type:||MPRA Paper|
|Original Title:||Pricing to Market in Business Cycle Models|
|Keywords:||pricing to market, law of one price, incomplete pass-through, international correlations, international business cycle, sticky prices, pass-through coefficient|
|Subjects:||E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E32 - Business Fluctuations; Cycles
F - International Economics > F4 - Macroeconomic Aspects of International Trade and Finance > F41 - Open Economy Macroeconomics
F - International Economics > F3 - International Finance > F31 - Foreign Exchange
|Depositing User:||Lukasz A. Drozd|
|Date Deposited:||06. May 2010 01:42|
|Last Modified:||13. Feb 2013 00:32|
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