We introduce elements of state-dependent pricing and strategic complementarity into an otherwise standard New Open Economy Macroeconomics (NOEM) model. Relative to previous NOEM works, there are new implications for the dynamics of real and nominal economic activity: complementarity in the...

This paper extracts information on inflation expectations, the real interest rate, and various risk premiums by exploring the underlying common factors among the actual inflation, University of Michigan consumer survey inflation forecast, yields on U.S. nominal Treasury bonds, and particularly,...

I measure the extent of international market segmentation using local, national, and international Big Mac prices. I show that the bulk of time-series price volatility observed across the United States arises between neighboring locations. Using these data, I provide new estimates of border...

The classical dichotomy predicts that all of the time series variance in the aggregate real exchange rate is accounted for by nontraded goods in the CPI basket because traded goods obey the Law of One Price. In stark contrast, Engel (1999) found that traded goods had comparable volatility to the...

Over the last 40 years, an increasing share of U.S. aggregate E&S investment expenditure has been allocated to capital-goods imports. While capital-goods imports were only 3.5 percent of E&S investment in 1967, by 2008 their share had risen tenfold to 36 percent. The goal of this paper is to...

With over 300 stores in 40 countries, IKEA is a major international presence in retail housewares and furnishings. IKEA publishes country-specific catalogs with local-currency prices guaranteed to hold for 1 year. This paper explores a new dataset of IKEA products and catalog prices covering six...

This paper presents a two-country DSGE model with state-dependent pricing as in Dotsey, King, and Wolman (1999) in which firms price-discriminate across countries by setting prices in local currency. In this model, a domestic monetary expansion has greater spillover effects to foreign prices and...