Melitz and Ottaviano (2008) predicts a monotonic relation between productivity and markups. When including revenue taxes, however, this relation is non-monotonic and depends on taxes. Even without taxes, productivity and markups can be non-monotonic depending on how non-homotheticity is modeled.

We develop and estimate an open economy New Keynesian Phillips curve (NKPC) in which variable demand elasticities give rise to movements in desired markups in response to changes in competitive pressure from abroad. A parametric restriction on our specification yields the standard NKPC, in which...

This paper uses an open economy DSGE model to explore how trade openness affects the transmission of domestic shocks. For some calibrations, closed and open economies appear dramatically different, reminiscent of the implications of Mundell-Fleming style models. However, we argue such stark...