A macroeconomic model of international price discrimination

Corsetti, Giancarlo; Dedola, Luca

doi:10.1016/j.jinteco.2004.09.009

Cited by 284 publications

(226 citation statements)

References 37 publications

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“…Equations (13) and (14) represent the demand functions for home and foreign intermediate varieties and equation (15) represents the demand function for the nontraded input used for distribution, y d N . Equation (16) determines the final (retail) price of the traded composite good, P T,t , as a function of its price before distribution, P T,t , and the price of distribution services, P N,t .…”

Section: Retailers Of the Final Composite Traded Good Y Tt Combinmentioning

confidence: 99%

Fiscal policy and regional inflation in a currency union

Duarte

Wolman

2008

Journal of International Economics

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This paper investigates the ability of a region participating in a currency union to affect its inflation differential with respect to the union through fiscal policy. We study the interaction between regional fiscal policy and inflation differentials in a two-region general equilibrium model with traded and nontraded goods. We show that a regional fiscal policy that lowers the volatility of the inflation differential can potentially lead to higher volatility of domestic inflation, leaving the volatility of real output roughly unchanged. Moreover, we find that regional tax rules that respond to domestic inflation increase the volatility of real output. These policies, however, leave the volatility of the inflation differential largely unchanged. Our results show that regional fiscal policies can have substantial spill-over effects on the volatility of union-wide and foreign inflation, suggesting the need to study the problem of coordination between regional fiscal authorities and between the central monetary authority and regional fiscal authorities.

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Section: Retailers Of the Final Composite Traded Good Y Tt Combinmentioning

confidence: 99%

Fiscal policy and regional inflation in a currency union

Duarte

Wolman

2008

Journal of International Economics

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“…int u tells us how relative consumption quantities react to shocks in the quantity of consumption a country can buy for its output. 6 The di¤erence between int and reg u must tell us something about the role of interregional and international price dispersion for risk sharing.…”

Section: Common Vs Country-speci…c Consumption De ‡A-torsmentioning

confidence: 99%

The Lack of International Consumption Risk Sharing: Can Inflation Differentials and Trading Costs Help Explain the Puzzle?

Hoffmann

2007

Open Econ Rev

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The bulk of evidence on the lack of international risk sharing is based on regressions of idiosyncratic consumption growth on idiosyncratic output growth. This paper argues that the results from such regressions obtained from international data are, however, not directly comparable to those based on regional data: the standard practice of running such regressions on international data fails to account for persistent international differentials in consumer prices, whereas -implicitly -most of the literature based on regional data has accounted for these differences. When risk sharing regressions are set up in conceptually the same way in international and regional data sets, the estimated coefficients are also very similar. To explore this result further, we adapt the variance decomposition of Asdrubali Sørensen and Yosha (QJE 1996) to allow for deviations from purchasing power parity across countries. While quantity (income and credit) flows are the dominant channel of risk sharing among regions, relative consumption and output price (internal terms of trade) fluctuations account for the bulk of the deviation from the complete markets outcome in international data. To the extent that persistent differences in consumer prices are an indication of goods market segmentation, our findings provide empirical evidence for the proposition by Obstfeld and Rogoff (2000) that segmented international goods markets rather than asset market incompleteness may account for the (apparent) lack of risk sharing between countries. AbstractThe bulk of evidence on the lack of international risk sharing is based on regressions of idiosyncratic consumption growth on idiosyncratic output growth. This paper argues that the results from such regressions obtained from international data are, however, not directly comparable to those based on regional data: the standard practice of running such regressions on international data fails to account for persistent international di¤erentials in consumer prices, whereas -implicitly -most of the literature based on regional data has accounted for these di¤erences. When risk sharing regressions are set up in conceptually the same way in international and regional data sets, the estimated coe¢ cients are also very similar. To explore this result further, we adapt the variance decomposition of Asdrubali Sørensen and Yosha (QJE 1996) to allow for deviations from purchasing power parity across countries. While quantity (income and credit) ‡ows are the dominant channel of risk sharing among regions, relative consumption and output price (internal terms of trade) ‡uctuations account for the bulk of the deviation from the complete markets outcome in international data. To the extent that persistent di¤er-ences in consumer prices are an indication of goods market segmentation, our …ndings provide empirical evidence for the proposition by Obstfeld and Rogo¤ (2000) that segmented international goods markets rather than asset market incompleteness may account for the (apparent) lack of risk sharing...

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“…Studies such as by Crucini and Yilmazkuday (2014) show how the retail sector can contribute to international price di¤erences. 2 Studies such as Helpman and Krugman (1985), Lapham (1995), Bergin and Feenstra (2001), Alessandria (2004), Corsetti and Dedola (2005), Hellerstein (2006), Atkeson and Burstein (2008), Simonovska (2015), among many others, have all investigated international price di¤erences using monopolistically competitive models with non-constant elasticities of demand. 3 importer-country utility function further determines the price elasticity of demand and the elasticity of substitution (across products imported from di¤erent countries) through utility maximization.…”

Section: Introductionmentioning

confidence: 99%

Constant versus variable markups: Implications for the law of one price

Yilmazkuday

2016

International Review of Economics & Finance

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This paper compares the implications of having constant versus variable markups on the Law of One Price (LOP) by decomposing the good-category level prices into marginal costs of production, markups, and trade costs. Using a trade model, it is shown that the case of constant markups corresponds to log-linear trade regressions, while the case of variable markups corresponds to lin-log trade regressions. Empirical results show that marginal costs of production contribute most to the deviations from LOP for both cases of constant and variable markups; the decomposition of marginal costs further shows that destination-speci…c quality measures play the biggest role. JEL Classi…cation F12, F13, F14

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A macroeconomic model of international price discrimination

Cited by 284 publications

References 37 publications

Fiscal policy and regional inflation in a currency union

Fiscal policy and regional inflation in a currency union

The Lack of International Consumption Risk Sharing: Can Inflation Differentials and Trading Costs Help Explain the Puzzle?

Constant versus variable markups: Implications for the law of one price

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