Despite its importance, the microeconomics of the international transmission of shocks is not well understood. The conventional wisdom is that relative price changes are the primary mechanism by which shocks are transmitted across borders. Yet traded-goods prices exhibit significant inertia in...

A growing share of international trade occurs through intra-firm transactions-those between domestic and foreign subsidiaries of a multinational firm. The difficulties associated with writing and enforcing a vertical contract compound when a product must cross a national border, and may explain...