International Shocks, Variable Markups, and Domestic Prices

• Mary Amiti ^[3] ; Oleg Itskhoki ^[1] ; Jozef Konings ^[2]
  1. [1] Princeton University

     Princeton University

     Estados Unidos

     
  2. [2] University of Liverpool

     University of Liverpool

     Reino Unido

     
  3. [3] Federal Reserve Bank of New York

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• Localización: Review of economic studies, ISSN 0034-6527, Vol. 86, Nº 6, 2019, págs. 2356-2402
• Idioma: inglés
• Texto completo no disponible (Saber más ...)
• Resumen

  • How strong are strategic complementarities in price setting across firms? In this article, we provide a direct empirical estimate of firms’ price responses to changes in competitor prices. We develop a general theoretical framework and an empirical identification strategy, taking advantage of a new micro-level dataset for the Belgian manufacturing sector. We find strong evidence of strategic complementarities, with a typical firm adjusting its price with an elasticity of 0.4 in response to its competitors’ price changes and with an elasticity of 0.6 in response to its own cost shocks. Furthermore, we find evidence of substantial heterogeneity in these elasticities across firms. Small firms exhibit no strategic complementarities in price setting and complete cost pass-through. In contrast, large firms exhibit strong strategic complementarities, responding to both competitor price changes and their own cost shocks with roughly equal elasticities of around 0.5. We show that this pattern of heterogeneity in markup variability across firms is important for explaining the aggregate markup response to international shocks and the observed low exchange rate pass-through into domestic prices.