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Understanding Markups in the Open Economy †

Understanding Markups in the Open Economy † Abstract This paper presents a new model of Bertrand competition between heterogeneous firms in the open economy where the macroeconomic distribution of markups responds to the degree of trade openness and the underlying level of technology in each trading partner. The model’s simple closed-form distributions for markups and pricing yield predictions that coincide with a number of stylized facts from the empirical literature on markups, pass-through, and trade openness which previously could be illustrated only through numerical simulations. (JEL D43, F12, F41, L13 ) http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png American Economic Journal: Macroeconomics American Economic Association

Understanding Markups in the Open Economy †

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Publisher
American Economic Association
Copyright
Copyright © 2015 by the American Economic Association
Subject
Articles
ISSN
1945-7715
eISSN
1945-7715
DOI
10.1257/mac.20120155
Publisher site
See Article on Publisher Site

Abstract

Abstract This paper presents a new model of Bertrand competition between heterogeneous firms in the open economy where the macroeconomic distribution of markups responds to the degree of trade openness and the underlying level of technology in each trading partner. The model’s simple closed-form distributions for markups and pricing yield predictions that coincide with a number of stylized facts from the empirical literature on markups, pass-through, and trade openness which previously could be illustrated only through numerical simulations. (JEL D43, F12, F41, L13 )

Journal

American Economic Journal: MacroeconomicsAmerican Economic Association

Published: Apr 1, 2015

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