explaining the border effect the role of exchange rate variability shipping costs and geography this paper exploits a three dimensional panel data set of prices on 27 traded goods over 88 quarters across 96 cities in the us and japan we show that a simple average of good level real exchange rates tracks the nominal exchange rate well suggesting strong evidence of sticky prices focusing on dispersion in prices between city pairs we find that crossing the us japan border is equivalent to adding as much as 43 000 trillion miles to the cross country volatility of relative prices we turn next to economic explanations for this so called border effect and to its dynamics distance unit shipping costs and exchange rate variability collectively explain a substantial portion of the observed international market segmentation relative wage variability on the other hand has little independent impact on segmentation 2001 elsevier science b v all rights reserved

convergence to the law of one price without trade barriers or currency fluctuations using a panel of 51 prices from 48 cities in the united states we provide an upper bound estimate of the rate of convergence to purchasing power parity we find convergence rates substantially higher than typically found in cross country data we investigate some potentially serious biases induced by i i d measurement errors in the data and find our estimates to be robust to these potential biases we also present evidence that convergence occurs faster for larger price differences finally we find that rates of convergence are slower for cities farther apart however our estimates suggest that distance alone can only account for a small portion of the much slower convergence rates across national borders

price pass through and the minimum wage this paper tests a textbook consequence of competitive markets that an industry wide increase in the price of labor is passed on to consumers through an increase in prices using several data sources on restaurant prices i explore the price impact of minimum wage hikes in canada and the united states particular attention is paid to the timing of these price responses to gauge the stickiness of minimum wage cost shocks i find that restaurant prices generally rise with changes in the wage bill and that this response is concentrated in the quarter surrounding the month during which the legislation is enacted

sticky prices and deviations from the law of one price evidence from mexican micro price data abstract this paper uses a novel dataset of weekly sampled store level prices to study the impact of sticky prices on the volatility and persistence of intranational deviations from the law of one price lop the volatility of lop deviations is found to be increasing both on the distance separating two locations and on the degree of price stickiness sticky prices are also found to be systematically related to the persistence of lop deviations half lives of lop deviations are systematically larger for goods with stickier prices these observations are shown to accord well with the predictions of a dynamic general equilibrium model featuring real market segmentation and calvo pricing i also find evidence of remarkably fast convergence to the lop average half lives of lop deviations are in the order of 3 6 weeks and show that previously reported convergence estimates may be afflicted by a positive temporal aggregation bias

monetary union price level convergence and inflation how close is europe to the usa abstract the pattern of price dispersion across european and us cities from 1990 to 2004 is documented there is a striking decline in dispersion for traded goods prices in europe most of which took place prior to the launch of the euro dispersion in the euro area is now quite close to that of the usa this evidence provides useful facts for future work assessing the importance of various developments in europe harmonization of tax rates convergence of incomes and labor costs liberalization of trade and factor markets and increased coherence of monetary policy

the transformation of technological regimes abstract this article explores how the transformation of technological regimes is enabled and constrained by sectoral patterns of innovation four innovation patterns are distinguished the supplier dependent the user driven the mission oriented and the r d dependent innovation pattern on the basis of a multiple case it is shown that there are distinct differences between how these four innovation patterns enable and constrain the transformation of technological regimes and in the degree to which they do so it is further shown that innovation patterns sometimes enable the development and acceptance of innovations that radically deviate from existing regimes and may help to transform such regimes the implications for the management of technology are discussed

the evolution of price dispersion in china s passenger car markets this research identified the rising price dispersion of passenger cars in chinese cities during the period from 2004 to 2006 the sources of the price differentials were then further explored the theoretical and empirical analyses suggest that the income effect as reflected by income differentials across chinese cities and the competition effect as reflected by car supply differentials across chinese cities largely account for regional automobile price differentials across china

does the law of one price hold for hedonic prices hedonic prices of locational attributes in urban land markets are determined by a process of spatial arbitrage that is similar to that which underpins the law of one price if hedonic prices deviat

understanding carbon lock in abstract this paper narrative argues that industrial economies have been locked into fossil fuel based energy systems through a process of technological and institutional co evolution driven by path dependent increasing returns to scale it is asserted that this condition termed carbon lock in creates persistent market and policy failures that can inhibit the diffusion of carbon saving technologies despite their apparent environmental and economic advantages the notion of a techno institutional complex is introduced to capture the idea that lock in occurs through combined interactions among technological systems and governing institutions while carbon lock in provides a conceptual basis for understanding macro level barriers to the diffusion of carbon saving technologies it also generates questions for standard economic modeling approaches that abstract away technological and institutional evolution in their elaboration the question of escaping carbon lock in is left for a future paper

the law of one price intranational evidence for canada this study investigates the behaviour of intranational prices for 45 specific consumer goods across 25 canadian cities it finds positive roles for distance and provincial borders in intercity price disparities while sizable the provincial border effect is an order of magnitude smaller than the estimates for the canada u s border a majority of the intercity relative price series are stationary around small mean values indicating that long run price differences are close to zero the intercity prices converge at rates considerably faster than the consensus estimates for international prices in fact half lives for intercity price deviations average well under a year jel classification f15 f31 la loi d un seul prix resultats intra nationaux pour le canada ce memoire examine le comportement des prix intra nationaux de 45 biens de consommation specifiques dans 25 villes canadiennes il semble que la distance et les frontieres inter provinciales ont un impact sur les differentiels de prix entre villes meme si l impact des frontieres inter provinciales est important il est beaucoupplus petit que l impact de la frontiere canada u s une majorite des series de prix relatifs entre villes sont stationnaires autour de petites valeurs moyennes ce qui suggere que les differences de prix a long terme s approchent de zero il est clair que les prix entre villes convergent a des taux considerablement plus rapides que ce qu on observe au niveau international en fait les deviations de prix entre villes ont une esperance de vie qui en moyenne est de moins d un an

ppp strikes back aggregation and the real exchange rate we show the importance of a dynamic aggregation bias in accounting for the ppp puzzle we prove that the aggregate real exchange rate is persistent because its components have heterogeneous dynamics established time series and panel methods fail to control for this using eurostat data we find that when heterogeneity is taken into account the estimated persistence of real exchange rates falls dramatically its half life for instance may fall to as low as eleven months significantly below the consensus view of three to five years

real exchange rate behavior the recent float from the perspective of the past two centuries using annual data spanning two centuries for dollar sterling and franc sterling real exchange rates we find strong evidence of mean reverting real exchange rate behavior using simple stationary autoregressive models estimated on prefloat data we easily outperform nonstationary real exchange rate models in dynamic forecasting exercises over the recent float such stationary univariate equations explain 60 80 percent of the in sample variation in real exchange rates although the degree of short run persistence may be high the econometric estimates imply a half life of shocks to the real exchange rate of about 6 years for dollar sterling and a little under 3 years for franc sterling

the law of one price without the border the role of distance versus sticky prices we examine the role of nominal price rigidities in explaining the deviations from the law of one price lop across cities in japan focusing on intra national relative prices isolates the border eect and thus enables us to extract the pure eect of sticky prices a two city model with nominal rigidities and transportation costs predicts that the variation of lop deviations is lower for goods with less frequent price adjustment after controlling for the distance separating the cities using retail price data for individual goods and services collected in japanese cities we find strong evidence supporting this prediction adapting the engel and rogers 1996 regression framework to our theoretical setting we quantify the separate roles of nominal rigidities and trade costs proxied by distance in generating lop variability our estimates suggest that the distance equivalent of nominal rigidities can be as large as the width of the border typically found in the literature on international lop deviations the findings point to both the utility of the regression framework in identifying qualitative eects i e sign of a coecient and the challenges interpreting their quantitative implications

the micro macro disconnect of purchasing power parity abstract this paper reconciles the persistence of aggregate real exchange rates with the faster adjustment of international relative prices in microeconomic data error correction model estimates indicate that a different mix of shocks drives international price deviations at the microeconomic level and that dynamic adjustment works through arbitrage in the goods market rather than the foreign exchange market when half lives are estimated conditional on a common set of estimated macro shocks we find that micro relative prices exhibit every bit as much persistence as aggregate real exchange rates these results challenge theories of real exchange rate persistence based on sticky prices and heterogeneity across goods

purchasing power parity in the long run a test of the dollar pound exchange rate 1890 1978 this paper tests the purchasing power parity ppp hypothesis by analyzing t he long run tendency of the dollar pound exchange rate using data sin ce 1890 two different models are considered 1 a na ive model and 2 a modified monetary model the conditions of propor tionality and symmetry cannot be rejected when using the naive model the final results using the monetary model however indicate that t he existence of permanent deviations from ppp cannot be ruled out copyright 1987 by ohio state university press

a prism into the ppp puzzles the micro foundations of big mac real exchange rates we match big mac prices with prices of its ingredients as a unique prism to study real exchange rates rers this approach has several advantages first the levels of the big mac rer can be measured meaningfully second as the exact composition of a big mac is known the contributions of its tradable and non tradable components can be estimated relatively precisely third the dynamics of the rer can be studied in a setting free of several biases inherent in cpi based rers finally a large cross country dimension allows us to overturn the engel result on what drives rers in most economies the exchange rate is the single most important relative price one that potentially feeds back into a large range of transactions obstfeld and rogoff 2000

evidence on the purchasing power parity in a panel of cities evidence is provided on the ppp hypothesis using a sample of 50 spanish cities for a long time period through the application of panel data unit root tests although results suggest non rejection of the ppp short run deviations as measured by half lives indicate that real factors might be causing a slow rate of convergence to a common price index even in highly integrated economies

price level convergence new evidence from u s cities abstract this paper tests the bilateral price level convergence among 52 u s cities at the good level by using a new econometric approach the estimated median half lives are far below the half lives found in the corresponding studies for the u s

distance language religion and the law of one price evidence from canada and nigeria we examine the impact of physical distance language and religion on law of one price lop deviations across interwar canadian and modern nigerian cities the data comprise monthly average retail prices for narrowly defined goods collected by national statistical agencies we find that differences in the fraction of the city population sharing a common language and religion have a significant impact on lop deviations the impact of language differences is consistent with a recently developed theory in which both trade costs and differences in signal noise ratios contribute to lop deviations

a consumption based approach to carbon emission accounting sectoral differences and environmental benefits in recent years there has been growing concern about the emission trade balances of countries this is due to the fact that countries with an open economy are active players in international trade trade is not only a major factor in forging a country s economic structure but contributes to the movement of embodied emissions beyond country borders this issue is especially relevant from the carbon accounting policy and domestic production perspective as it is known that the production based principle is employed in the kyoto agreement the research described herein was designed to reveal the interdependence of countries on international trade and the corresponding embodied emissions both on national and on sectoral level and to illustrate the significance of the consumption based emission accounting it is presented here to what extent a consumption based accounting would change the present system based on production based accounting and allocation the relationship of co2 emission embodied in exports and embodied in imports is analysed here international trade can blur the responsibility for the ecological effects of production and consumption and it can lengthen the link between consumption and its consequences input output models are used in the methodology as they provide an appropriate framework for climate change accounting the analysis comprises an international comparative study of four european countries germany the united kingdom the netherlands and hungary with extended trading activities and carbon emissions moving from a production based approach in climate policy to a consumption based principle and allocation approach would help to increase the efficiency of emission reductions and would force countries to rethink their trading activities in order to decrease the environmental load of production activities the results of this study show that it is important to distinguish between the two emission accounting approaches both on the global and the local level

does the law of one price hold in a high inflation environment a tale of two cities in turkey this study addresses the price convergence in two cities in turkey istanbul and ankara using annual data over the three quarters of the twentieth century 1922 1998 characterized by prevailing high inflation rates for most of the period in contrast to the rest of the literature addressing convergence in price levels with a typical result of extremely slow convergence rates at best we argue that convergence is much easier detected in growth rates rather than levels of prices we suggest using the bounds testing procedure of pesaran et al 2001 for this purpose we find a clear cut evidence on the existence of a common driving force behind inflation dynamics in istanbul and ankara a finding that is in contrast with the results typically reported in related literature

rising regional inequality in china fact or artifact summary china s local populations can be counted in two ways people with hukou household registration from each place and people actually residing in each place for most of the first three decades of the reform era the hukou count denominated per capita gdp figures output and living standards were overstated in coastal provinces and understated in the interior the distortion grew bigger as the non hukou migrants increased to over 100 million much of the apparent increase in inter provincial inequality is a statistical artifact caused by this distortion the recent switch to using the resident count to denominate gdp introduced new distortions

haircuts or hysteresis sources of movements in real exchange rates abstract we empirically assess the importance of two sources of real exchange rate movements in models where ppp holds only among traded goods real exchange rate variation results from relative price movements within countries an alternative explanation relies on hysteretic price setting and nominal exchange rate changes using disaggregated price data from 11 oecd nations we find some support for the non traded goods models for example prices of haircuts in canada and the united states are unrelated in the long run we find stronger evidence to support models that emphasize sticky prices transportation costs or other impediments to frictionless trade

is it enough evidence from a natural experiment in india s agriculture markets access to information and communication technologies icts such as mobile phone networks is widely known to improve market efficiency in this paper we examine whether access to timely and accurate information provided through ict applications has any additional impact using a detailed data set from reuters market light rml a text message service in india that provides daily price information to market participants we find that this information reduces the geographic price dispersion of crops in rural communities by an average of 12 over and above access to mobile phone technology and other means of communication to identify the effect of information on price dispersion we exploit a natural experiment where bulk text messages were banned unexpectedly across india for 12 days in 2010 we find that besides reducing geographic price dispersion rml also increases the rate at which prices converge across india over time we discuss the implications of this for development organizations and informat

no razor s edge reexamining alwyn young s evidence for increasing inter provincial trade barriers in china abstract alwyn young 2000 argues that barriers to interprovincial trade in china have increased during the reform period this paper critically examines each of his five arguments and the evidence he presents in all five instances the argument is problematic and the evidence not robust a comparison with the united states shows the chinese evidence to be well within the range of that of a normal relatively integrated large economy

accounting for u s regional real exchange rates we examine the relationship between the relative price of nontradables and real exchange rate movements for fixed exchange rate regimes using bls cpi data we show that purchasing power parity holds strongly for tradables across u s regions as a result nontradables play a central role in u s regional real exchange rate movements indeed changes in the relative price of nontradables explain up to 80 of regional real exchange rate changes over medium and long run horizons we also argue that nontradables can account for a large portion of real exchange rate changes internationally with high nontradables expenditure shares

domestic market integration and regional economic growth china s recent experience from 1995 2011 summary this paper constructs an enhanced indicator for trade barrier and examines the endogenous relationship between market integration and regional economies across china from 1995 to 2011 beyond the current literature this study shows the endogenous relationship is significant reflecting a virtuous cycle domestic openness contributes to the economies in the central region more than in the other regions the feedback effect is stronger in the eastern and central regions than in the western and northeastern domestic openness and regional economies are adversely affected by state owned enterprises and government non productive expenditure several policy implications relevant to chinese economy are drawn from the findings

implementing a market based spectrum policy abstract the spectrum auctions were a step toward the herzel coase vision of a flexible and efficient market for spectrum this article examines what remains to be done spectrum must be unbundled from broadcast and transmission facilities the commoditization of spectrum will facilitate standardization price discovery and open access to diverse users a liquid secondary spectrum market will lower transactions and entry cost making telecommunications markets contestable auctions should be used to elicit a supply of spectrum from licensees as well as to allocate it to new users in closing the spectrum commons congress granted use to a privileged few unbundled spectrum property rights commoditization and open markets will give the public access to this public resource

the climate change challenge and transitions for radical changes in the european steel industry this paper presents ideas pertaining to transitions that are envisaged in the steel industry from cleaner production cp to systems innovation limits of the socio technical system and the climate change challenge will induce changes in the production distribution and consumption patterns of steel and other materials insights from industrial economics and evolutionary theory on innovation for sustainable development are needed to assess the rationale behind the adoption and diffusion of new breakthrough technologies named ultra low co2 steel making ulcos evolution in material consumption patterns deserves a special research agenda which focuses upon the long term evolution of the consuming sectors as major changes in the infrastructure and products that support our many energy dependent services mobility shelter heat light etc are expected these changes will be significantly amplified by greenhouse gas emission constraints

real exchange rates and macroeconomics evidence and theory since the early 1980s a large body of research has thrown doubt on the relevance of macroeconomic models for understanding exchange rates the authors argue that a balanced reading of recent literature in exchange rate economics gives a more optimistic assessment many studies have established the pertinence of long run purchasing power parity ppp and the explanatory power of macroeconomic fundamentals in real exchange rate fluctuations a reasonably strong case can be made for a traditional macroeocnomic interpretation of real exchange rates which emphasizes short run price stickiness but long run ppp but a central new ingredient in this interpretation is the presence of international commodity market segmentation and persistent deviations from the law of one price an example is given of a dynamic general equilibrium model that can reproduce some of the observed features of real exchange rate fluctuations

noisy information distance and law of one price dynamics across us cities abstract us micro price data at the city level suggests that both the volatility and the persistence of law of one price deviations are rising in the distance between us cities a standard two city equilibrium model with trade costs can predict the relationship between volatility and distance but not between persistence and distance we show that if there is imperfect information about the state of nominal aggregate demand with noisy signals that are asymmetric across cities then distance and persistence will be positively correlated our main results are shown to be robust to the introduction of sticky prices and multiple cities

testing purchasing power parity under the null hypothesis of co integration this paper analyzes monthly data on the exchange rates and price indices of the eleven major industrial countries over the modern period of floating exchange rates it presents tests that are based upon the null hypothesis of cointegration the paper finds evidence that most country pairs not involving north american currencies have exchange rates and price indices that are cointegrated it estimates the error correction representation for the series that are cointegrated and it shows that the dynamic adjustment of the relationship between exchange rates and prices is accomplished almost entirely in the market for foreign exchange copyright 1991 by royal economic society

does the razor s edge exist new evidence of the law of one price in china 1997 2012 this paper revisits the market integration in china under the gradual economic reform using a novel data set of monthly prices for 267 goods across 173 cities from 1997 to 2012 with price regulations dramatically removed we provide new evidence to show that the law of one price lop holds in the context of china which is experiencing substantial trade liberalisation first by accounting for heterogeneity and cross sectional dependence our results show that prices converge to the lop for most goods and industrial materials converge faster than non perishable goods second in comparison with the earlier analysis with static evidence our results with the moving window show that convergence is escalating third we find that the price dispersion across products at the city level is increasing with distance but it is decreasing with openness and economic development our findings show china s market integration is going well under its ongoing market oriented reforms and cast doubt on the proposition that incremental reform in china has led to the fragmentation of the domestic market

export flexibility and currency hedging this article studies the behavior of an export flexible firm under exchange rate uncertainty we show that the separation theorem holds if selling exclusively in the domestic market is suboptimal even under the most unfavorable spot exchange rate otherwise the firm s optimal output depends on its preferences and on the underlying uncertainty we further show that the full hedging theorem holds only when the firm always finds it optimal to sell its entire output in the foreign market otherwise export flexibility introduces a convexity into the firm s foreign exchange risk exposure which calls for the use of currency options for hedging purposes

searching for stationarity purchasing power parity under the current float abstract using panel data methods we investigate long run purchasing power parity by testing for unit roots in real exchange rates of industrial countries under the current float the evidence against the unit root hypothesis is stronger for larger than for smaller panels for monthly than for quarterly data and when the german mark rather than the united states dollar is used as the base currency while we find that accounting for serial correlation considerably weakens the evidence against the unit root null the results as a whole are consistent with long run purchasing power parity

the behaviour of relative prices in the european union a sectoral analysis using multivariate unit root test methods this paper investigates the purchasing power parity ppp hypothesis at the sectoral level across six european countries over the last 17 years evidence of mean reversion towards ppp is found for the relative prices of some sectors and countries mean reversion in relative prices is explained by cross country and cross sectoral characteristics such as the distance between countries nominal exchange rate volatility differences in gdp per capita non tariff barriers research and development advertising industrial concentration and tradeability of the products

fiscal policy and regional inflation in a currency union abstract substantial attention has been devoted to inflation differentials within the european monetary union including suggestions that inflation differentials are a policy issue for national governments this paper investigates the ability of a region participating in a currency union to affect its inflation differential with respect to the union through fiscal policy in a two region general equilibrium model with traded and nontraded goods lowering the labor income tax rate in response to positive inflation differentials succeeds in compressing inflation differentials such policies can lead to higher volatility of domestic inflation while leaving the volatility of real output roughly unchanged regional fiscal policies also have spill over effects on the volatility of union wide and foreign inflation in our model

can sticky prices account for the variations and persistence in real exchange rates abstract this paper provides an empirical assessment of the importance of sticky prices in accounting for the variations and the persistence in real exchange rates vector autoregressions with five variables from two countries that always include the united states are estimated restrictions are imposed to identify a global shock and two sets of country specific output shocks one set of shocks is associated with instantaneous price adjustments while the other has delayed effects on prices data from the g7 countries reveal that us sticky price shocks are the dominant source of real exchange rate variations but these shocks have reasonably short half lives and cannot account for the observed real exchange rate persistence non sticky price shocks can induce very persistent real exchange rate dynamics even though they account for little of the historical real exchange rate variations