Lecture 5 - Isabelle MEJEAN's home page

Conclusion
Betts & Devereux (1996)
Campa & Goldberg (2006)
ERPT into CPIs depends on the role that tradables have in the
economy (consumption and imported inputs)
Pass-through into nontraded goods prices and home tradable prices
also contribute to overall CPI pass-through
Distribution margins are important for damping border price pass
through into consumption prices, but also enhance pass through
because distribution expenditure for all tradables is sensitive to the
nontradable sector’s reliance on imported inputs.
Limits:
Model that relies on Dixit-Stiglitz preferences: No incentive to PTM
→ Complete ERPT into import prices (measured at the border) →
Inconsistent with empirical evidence → Possible solution: Quasi
linear demand functions, oligopolistic competition (Atkeson &
Burstein, 2006)
Possible effects via the extensive margin of trade (Berman, Martin &
Mayer, 2008)
Isabelle Méjean Lecture 5