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

rising residential rents in chinese mega cities the role of monetary policy although there have been a large number of studies carried out on fluctuations in housing prices little is known about what causes changes in residential rents which are inextricably intertwined with urban living standards this is especially noteworthy in chinese cities which are now being challenged by the housing market frenzies shift share analysis is proposed to evaluate all possible triggers of residential rent inflation in three cities during the 2001 2013 period which covers two distinct monetary policy regimes in china it is found that the recent rise in residential rent comes as a result of aggregate inflation associated with an expansionary monetary policy since the 2008 global financial crisis and an all encompassing and stable policy stance should therefore be adopted

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

the impact of climate on the law of one price a test using north american food prices from the 1920s using grocery price data for over 100 urban locations across the us and canada from the 1920s we show that deviations from the law of one price lop were strongly related to climate differences the effect of climate has a large impact on the elasticity of deviations from lop with respect to distance while having no impact on the border effect we then test a counterfactual to show that the relationship between deviations from lop and temperature does not hold when historical temperature data are replaced with contemporary this is evidence that climate impacts production l impact du climat sur la loi du prix unique un test utilisant les prix de la nourriture en amerique du nord dans les annees 1920 a l aide de donnees sur les prix de la nourriture dans les epiceries dans plus d une centaine de villes aux etats unis et au canada dans les annees 1920 on montre que les deviations par rapport a la loi du prix unique lpu sont fortement reliees aux differences dans le climat l effet du climat a un grand impact sur l elasticite des deviations par rapport a la lpu par rapport a la distance mais aucun impact sur l effet de frontiere on utilise alors un test contrefactuel pour montrer que la relation entre les deviations par rapport a la lpu et la temperature ne tient pas quand on remplace les temperatures historiques par les temperatures contemporaines ceci montre que le climat a un impact sur la production

price convergence in us cities a cointegration approach with two structural breaks this article investigates how the price indices of major cities of the us respond to the shock from a city and from monetary policy we find that the crisis of bretton woods system in 1968 and the oil crisis in 1974 should be incorporated as structural breaks in monetary policy variables and price indices using cointegration technique with structural break in our aggregated data we find that the average half life is 1 75 years which is closer to what some of others found in disaggregated data and that the interest rate is an effective tool for controlling cities price in short run

migrants in a guest worker system a utility maximizing approach this paper examines the behavior of utility maximizing migrants in a system of guest worker migration their pattern of leisure and commodity consumption at home and abroad is analysed and related

impact of inter and intra regional coordination in markets with a large renewable component the establishment of the single european day ahead market has accomplished a crucial step towards the spatial integration of the european power system however this new arrangement does not consider any intra regional coordination of day ahead and balancing markets and thus may become counterproductive or inefficient under uncertain supply e g from weather driven renewable power generation in the absence of a specific target model for the common balancing market in europe we introduce a framework to compare different coordination schemes and market organizations the proposed models are formulated as stochastic equilibrium problems and compared against an optimal market setup the simulation results reveal significant efficiency loss in case of partial coordination and diversity of market structure among regional power systems

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

real exchange rates and relative prices an empirical investigation abstract this paper uncovers a striking empirical regularity the consumer price of a good relative to a different good within a country tends to be much less variable than the price of that good relative to a similar good in another country this fact seems to hold for all goods except very simple homogeneous products models of real exchange rates are likely to have predictions regarding this relation so this fact may provide a useful gauge for discriminating among models

explaining price level differences new evidence on the balassa samuelson effect we re examine one of the most venerable results in economics the balassa samuelson effect of balassa 1964 and samuelson 1964 the central claim of balassa samuelson is that nontradables explain price level differences across rich and poor economies we test balassa samuelson by quantifying the contribution of nontradables to cross sectional price level variation for countries in the international comparison program icp our results suggest that nontradables explain up to two thirds of price level variation

a test of the law of one price in retail banking this paper investigates the level and the determinants of retail banking interest rate differences among spanish banks in the period 1989 2003 we find that the interest rates of twenty five different bank loan and deposit products adjust rather rapidly to their long term values in response to external shocks as the relative version of the law of one price predicts but the evidence runs contrary to the absolute version of the law credit risk premium part of the marginal cost of the loans granted by a particular bank is an important source of interest rate dispersion across banks and loan products both before and after spain joined the euro zone therefore differences in credit risk policies across banks must be taken into account when forming expectations about european retail banking integration

convergence in price levels across us cities abstract this paper empirically tests for convergence in consumer price indices across 17 major cities in us over the 1918 2008 period by using the novel ols estimator introduced by bao y dhongde s 2009 testing convergence in income distribution oxford bulletin of economics and statistics 71 295 302 we find overwhelming evidences in support of price level convergence over time

price level convergence and regional phillips curves in the us and emu abstract we use panel estimates of regional phillips curves of the hybrid new keynesian type to study price level convergence within the us and emu regional inflation rates tend to eliminate ppp deviations in both monetary unions with average half lives around 3 years the start of emu did not greatly affect ppp reversion in the euro area where changes in nominal exchange rates accounted for the bulk of the adjustment process before 1999 this role was largely taken over by regional inflation differences since notwithstanding clear evidence of forward lookingness in the us inflation persistence is substantial in both monetary unions

inflation risk and international asset returns abstract we show that inflation risk is priced in international asset returns we analyze inflation risk in a framework that encompasses the international capital asset pricing model icapm of adler and dumas 1983 in contrast to the extant empirical literature on the icapm we relax the assumption that inflation rates are constant we estimate and test a conditional version of the model for the g5 countries france germany japan the uk and the us over the period 1975 1998 and find evidence of statistically and economically significant prices of inflation risk in addition to priced nominal exchange rate risk our results imply a rejection of the restrictions imposed by the icapm in an extension of our analysis to 2003 we show that even after the termination of nominal exchange rate fluctuations in the euro area in 1999 differences in inflation rates across countries entail non trivial real exchange rate risk premia

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

european electricity market integration with mixed market designs part i formulation the integration of the day ahead electricity markets in europe shall lead to one multi area market that will substitute the local national ones in view of the target model that will be enforced in all european markets in conjunction with their forthcoming coupling integration a centralized market splitting algorithm is implemented in this paper respecting the standard market regulatory framework of power exchanges pxs and power pools including 1 block offers bids linked block offers bids flexible hourly offers bids and convertible block offers in power exchanges and 2 unit technical commitment constraints and system operating constraints in power pools the problem is formulated as a mixed integer linear programming milp model which can be solved using commercial milp solvers the performance and computational requirements of an implementation in pan european level is presented in the companion paper the model is tested in terms of problem solvability to its limits considering a day ahead market clearing time threshold equal to one hour

segmentation of consumer markets in the us what do intercity price differences tell us we quantify the magnitude of market segmentation in us consumer market and explore the underlying factors behind this segmentation using a quarterly panel of retail prices for 45 products in 48 us cities from 1985 to 2009 the extent of market segmentation is estimated using city pair price differences within the framework of both linear autoregressive ar and nonlinear threshold autoregressive tar models we find that the magnitude of market segmentation varies from one product to another but even more across city pairs in each product contrary to a widespread perception market segmentation within the us is not necessarily larger for non tradable services compared to tradable goods we identify potential drivers of market segmentation by relating the cross city and cross product variations of market segmentation to location specific and product specific characteristics distance relative city sizes differences in wage and rent type of product and proximity to marketplace distance which captures more than transport costs turns out to be the most salient factor even after controlling for a range of other potential factors the effect of distance however varies substantially across products with perishable products and locally produced products showing larger distance effect on market segmentation we find that the magnitude of market segmentation has been somewhat stable during the sample period but intercity price differences have become more sensitive to distance over time in many products under study

productivity gains from geographic concentration of human capital evidence from the cities abstract based on recent theoretical developments the argument is made that the average level of human capital is a local public good cities with higher average levels of human capital should therefore have higher wages and higher land rents after conditioning on the characteristics of individual workers and dwellings this prediction is supported by data for standard metropolitan statistical areas smsas in the united states where the smsa average levels of formal education and work experience are used as proxies for the average level of human capital the alternative explanations of omitted smsa variables and self selection are evaluated an estimate of the effect of an additional year of average education on total factor productivity is computed

yen or yuan the law of one price and economic integration in asia using highly comparable local retail prices of 146 goods and services across 18 asian countries over 1990 2014 we analyse price dispersion and test convergence to the law of one price lop for these prices around three price benchmarks asia average japan and china prices to gain insight about market integration in overall asia as well relative integration of asian economies to japan and china cross asia price dispersion around china price benchmark for both tradables and non tradables diminishes significantly over the sample period whereas that around japan price benchmark increases considerably particularly after the 2008 crisis there is convergence to the lop for about half of goods and services in china and asia average price benchmarks the percentage of convergent prices is significantly smaller in japan price benchmark direct estimates of the convergence speed parameter also confirm these observations overall our results show evidence of increasing economic integration in asia in the last two decades the process of price convergence appears to be driven by the emergence of china as the centre of economic gravity in the region there is much room for improvement as economic integration in asia is still far below that in europe in the 1990s or usa in the 1980s

an empirical analysis of a regional dutch disease the case of canada while there has been extensive research on the dutch disease dd very little attention if any has been devoted to the regional mechanisms through which it may manifest itself this is the first empirical attempt to research a regional dd by looking at the local and spatial impacts of resource windfalls across canadian provinces and territories we construct a new panel dataset to examine separately the key dd channels namely the spending effect and the resource movement effect our analysis reveals that the standard dd mechanisms are also relevant at the regional level specifically we find that a resource windfalls are associated with higher inflation and a labour capital shift from to non primary tradable sectors b resource windfalls in neighbouring regions are associated with a capital labour shift from to non primary tradable sectors in the source region c the spatial dd explains 51 20 of the adverse effects of resource windfalls in neighbouring regions on region specific non mineral international exports in the source region and does not significantly affect domestic ones

nominal rigidities and retail price dispersion in canada over the twentieth century we introduce a new data set on over 230 000 monthly prices for 10 goods in 50 canadian cities over the 40 year period from 1910 to 1950 this information coupled with previously published price information from the late twentieth century allows us to present one of the first comprehensive views of nominal rigidities and retail price dispersion over the past 100 years we find that nominal rigidities have been conditioned upon prevailing rates of inflation with a greater frequency of price changes occurring in the 1920s and the 1970s additionally the process of retail market integration has followed a u shaped trajectory with many domestic markets being better integrated as measured by the average dispersion of retail prices at mid century than in the 1990s we also consider the linkages between nominal rigidities and price dispersion finding results consistent with present day data on utilise des donnees inedites de 230 000 prix mensuels pour 10 produits dans 50 villes canadiennes au cours de la periode de quarante ans qui va de 1910 a 1950 ces donnees ajoutees aux renseignements deja publies anterieurement sur les prix dans la derniere portion du vingtieme siecle permettent de presenter l un des premiers portraits comprehensifs des rigidites nominales et de la dispersion des prix de detail au cours des derniers 100 ans on decouvre que les rigidites nominales ont ete influencees par les taux d inflation qui ont prevalu avec pour consequence une plus grande frequence de changements de prix dans les annees 1920s et 1970s de plus chose surprenante le processus d integration du marche de detail a suivi une trajectoire en u plusieurs marches domestiques etant davantage integres en prenant comme mesure la dispersion moyenne des prix de detail au milieu du siecle que dans les annees 1990s on examine aussi les liens entre rigidites nominales et dispersion des prix et les resultats concordent avec ce que revelent les donnees recentes

a preliminary assessment of the market coupling arrangement on the kontek cable this paper presents a preliminary assessment of the market coupling arrangement on the kontek kt cable between east denmark and germany and an assessment of the original auction mechanism kt the new spot price area was introduced in germany on october 5 2005 to facilitate a market coupling arrangement on the kt cable between east denmark and germany we would expect the kt price to correlate more with the european energy exchange eex price because arbitrage normally levelizes the price however spot prices in late 2005 were both high and volatile because congestion management practices in sweden transferred internal bottlenecks to the cable between sweden and east denmark since spot prices were equal in east denmark and the kt area for a substantial time it implies that some hours had no congestion on the kt cable market players valued the previous monthly auctions for transmission capacity more than the daily auctions compared to the daily auctions market players received smaller payoffs on average for the market coupling arrangement and the smallest payoffs for the monthly auctions

real exchange rate behavior abstract using random simulations with artificial data with identical sample characteristics to the long sample exchange rate data employed by lothian and taylor lothian j r and taylor m p 1996 the recent float from the perspective of the past two centuries journal of political economy 104 488 509 we show that standard unit root tests have extremely low power over sample sizes corresponding to the recent float the probability of rejecting the null hypothesis when it is false is extremely low with 20 years or even 50 years of data and only reaches an acceptable level over much longer spans

price index convergence among united states cities we study the dynamics of price indices for major u s cities using panel econometric methods and find that relative price levels among cities mean revert at an exceptionally slow rate in a panel of 19 cities from 1918 to 1995 we estimate the half life of convergence to be approximately nine years the surprisingly slow rate of convergence can be explained by a combination of the presence of transportation costs differential speeds of adjustment to small and large shocks and the inclusion of nontraded goods prices in the overall price index do price indices in major u s cities share a common trend and if so how quickly do they revert to that trend following a local shock to the price index to answer this question we study the dynamics of consumer price indices for 19 major u s cities over the period from 1918 to 1995 the panel time series methods we employ are now commonly used for studying real output growth rates and levels of real exchange rates across countries we estimate that price index divergences across u s cities are temporary but surprisingly persistent with a half life of nearly nine years our research has two primary motivations first we hope to gain a better understanding of the sources of persistence in the deviations from purchasing power parity ppp found in studies of national price indices and exchange rate data second and more importantly we see the european monetary union as having many similarities to the united states and believe that studying the behavior of prices across u s cities will help us in understanding the likely nature of inflation convergence in the euro area the european central bank s stated inflation objective is a year on year change in the harmonized index of consumer prices hicp of not more than 2 but how large might we expect regional deviations from this euro area wide average to be and how long are they likely to persist the lack of data prevents us from answering this question directly using european prices under monetary union instead we look to the united states a mature common currency area of similar regional diversity size and industrial development

the overvaluation of purchasing power parity abstract recent panel studies of purchasing power parity have reported strong evidence of mean reversion in real exchange rates however these studies fail to control for cross sectional dependence in the data this failure has dramatic consequences raising the significance level of tests with a nominal size of 5 percent to as much as 50 percent it is shown in this paper that controlling for cross sectional dependence no evidence against the random walk null can be found in panels of up to 64 real exchange rates this finding cannot be attributed to low power as there is ample power in panels of this size to reject the unit root null

international evidence on tradables and nontradables inflation abstract using 1970 1985 sectoral data for the oecd we find that inflation in nontradable goods exceeds inflation in tradables we identify a demand shift towards nontradables and faster growth of total factor productivity in the tradable goods sector as the prime causes of the differential inflation in addition disinflation attempts and the exchange rate regime appear to have exerted significant influence on the relative inflation rate

the average shadow price for milps with integral resource availability and its relationship to the marginal unit shadow price abstract the economic significance of the average shadow price for integer and mixed integer linear programming milp problems has been established by researchers kim and cho eur j operat res 37 1988 328 crema eur j operat res 85 1995 625 in this paper we introduce a valid shadow price aspira for integer programs where the right hand side resource availability can only be varied in discrete steps we also introduce the concept of marginal unit shadow price musp we show that for integer programs a sufficient condition for the marginal unit shadow price to equal the average shadow price is that the law of diminishing returns should hold the polyhedral structures that will guarantee this equivalence have been explored identification of the problem classes for which the equivalence holds complements the existing procedure for determining shadow price for such integer programs the concepts of aspira and musp introduced in this paper can play a vital role in resource acquisition plans and in defining efficient market clearing prices in the presence of indivisibilities

are real exchange rates nonstationary evidence from a panel data test it is well documented that real exchange rates between the united states and many industrialized countries in the post bretton woods period are integrated this result implies that purchasing power parity ppp does not hold even as a long run relationship this paper demonstrates that the failure to reject the unit root hypothesis may result from the low power of existing univariate test procedures i test for unit roots in real exchange rates by employing a more powerful panel based procedure using both cpi and wpi real dollar exchange rate data i strongly reject the null hypothesis of a unit root my results provide overwhelming support for the long run ppp under the current float copyright 1996 by ohio state university press

inflation measurement and the ecb s pursuit of price stability a first assessment as part of its monetary policy strategy announced in 1998 the ecb provided a quantitative definition of its price stability objective as an annual rate of increase in the harmonized index of consumer prices hicp of below 2 0 percent this paper takes a measurement perspective in evaluating the ecb s quest for price stability during the first years of monetary we consider the following questions first what is the hicp designed to measure and how accurate is it in terms of its stated objective second how accurate are the traditional exclusion type measures of core inflation derived from the hicp and more importantly is there evidence that less traditional measures of core inflation might be useful to the ecb and third is there any sense in which the ecb s definition of price stability in terms of a 2 0 percent limit on hicp inflation can be said to be too low from a measurement perspective we conclude that the conceptual underpinnings of the hicp remain sufficiently vague that it is difficult to compare with other indexes or come to any hard conclusions about its accuracy it is possible that the hicp is as susceptible to the biases that are known to affect other measures of inflation at the consumer or household level and if forced to quantify potential bias a point estimate of 1 0 percent strikes us as reasonable potential bias of this magnitude in conjunction with the inherent noisiness of the headline number and the well known aversion of central bankers to deflation argues for a modest upward redefinition of the rate of hicp inflation consistent with price stability finally we show that the ecb would be well served by increasing their use of nontraditional core inflation measures

what impact does the choice of formula have on international comparisons in this paper an empirical comparison of a number of alternative multilateral index number formulae is undertaken the magnitude of the effect of choosing one formula over another is ascertained using an appropriate cross sectional data set constructed under the auspices of the eurostat oecd purchasing power parity programme to this end a new indicator is proposed that facilitates the measurement of the difference between two sets of bloc consumption shares each computed using a different multilateral comparison method jel classification c31 c43 c81 e31 f31 o57 quel impact est ce que le choix des formules a sur les comparaisons internationales ce memoire propose une comparaison empirique d un certain nombre de formules de nombres indices multilateraux on tente de jauger la magnitude de l impact du choix d une formule plutot qu une autre en utilisant une base de donnees transversales appropriee construite sous l egide du programme de parite du pouvoir d achat eurostat ocde on propose un nouvel indicateur qui facilite la mesure de la difference entre deux ensembles de patterns de consommation chacun calculea l aide d une methode de comparaison multilaterale differente

the purchasing power parity persistence paradigm abstract rogoff journal of economic literature 1996 34 647 668 describes the remarkable consensus of 3 5 year half lives of purchasing power parity deviations among studies using long horizon data these studies however focus on rejections of unit roots in real exchange rates and do not use appropriate techniques to measure persistence our half life estimates explicitly account for serial correlation sampling uncertainty and most importantly small sample bias calculating confidence intervals as well as point estimates for long horizon and post 1973 data we find that even though most of the point estimates lie within the 3 5 year range univariate methods provide virtually no information regarding the size of the half lives

the integration of major fuel source markets in china evidence from panel cointegration tests abstract the paper tests for energy price co movement in china over the new regime as part of a strategy to test for the existence of a national energy market panel cointegration test statistics suggest that not all energy commodities are spatially homogenous in prices and the processes of energy price cointegration are different over time and over groups of fuels the statistics demonstrate china s gradual spatially partial and idiosyncratic energy reform process coal and electricity price series have co moved since 2003 while the national panel cointegration test statistics suggest that gasoline and diesel price series have co moved since 1997 regional panel tests also show that there are apparently differences in the emergence of energy price co movement this suggests that regional energy markets have emerged in china one of the important lessons of the research is that an energy market has to some extent already emerged in china and as a consequence energy prices are much less distorted than previously if correct this fact is of major global significance both in terms of future environmental effects and future trade and investment negotiations as china is seen internationally as a market driven economy

historical perspetives on the american economy explaining the relative efficiency of slave agriculture in the antebellum south the comments by paul david and others in the march 1979 issue of this review dealt mainly with technical issues related to the measurement of the relative efficiency of slave agriculture and so does this reply 1 the debate over these technical issues should not however obscure the marked shift in thought about the nature of the slave economy that has occurred during the past two decades until the mid 1950 s it was widely believed that the slave plantations were unprofitable and inefficient enterprises that were kept in operation by a class prepared to sacrifice its private economic interest enduring economic stagnation for the south in order to maintain its political and cultural hegemony the first critical blow to this thesis was delivered by the now famous 1958 essay of alfred conrad and john meyer marshalling the limited evidence available at that time and using a standard capital model to estimate the internal rate of return on an investment in slaves they concluded that rates of return on this form of capital compared favorably with rates on alternative investments this finding set off an extended debate that took more than a decade to resolve eventually refinements in the original capital model and a considerable expansion of the data base including the parker gallman sample of over 5 000 southern farms and large samples of slave prices and hire rates from probate and other records placed the rate of return in the 610 percent range thus demonstrating the allocative efficiency of the slave economy the second blow to the traditional thesis was delivered by richard easterlin s development of regional income estimates extending back to 1840 both these initial estimates and the subsequent refinements in them see our 1971a paper showed that the south experienced a high rate of growth in per capita income between 1840 and 1860 thus contradicting the view that the antebellum south was economically stagnant these twin blows to the traditional interpretation shifted cliometric attention to the question of the relative technical efficiency of slave and free agriculture in input utilization while it is obviously premature to declare this question settled a consensus has emerged on one critical point it is now clear that the previous view that slave agriculture was less efficient than free agriculture is incorrect what remains to be resolved is the exact margin of the advantage enjoyed by slave plantations and the explanation for this margin

why price level dispersion went up in europe after the financial crisis persistent price differences across euro area countries are an indication of incomplete economic integration we analyse long and short run developments of price level dispersion in the euro area and compare the results with price dispersion across us cities we find that monetary and economic integration in europe has been successful in establishing a major downward trend in price level differences across countries since 1960 after the global financial crisis and the european sovereign debt crisis diverging economic conditions across euro area countries led to higher income dispersion which contributed to a widening of price level differences again

a real options perspective on the future of the euro abstract a break up of the eurozone is no longer regarded as implausible this will be a costly and irreversible decision in conditions of continuing uncertainty therefore it is amenable to analysis in the real options framework we do so by solving as an n dimensional optimal stopping problem with country specific shocks and convergence of member economies we compare a complete break up with individual country departures in calibrated solutions for a symmetric case we find a non negligible but small option value furthermore we find a new theoretical result on the non monotonicity of abandonment threshold with respect to volatility

the choice of numeraire currency in panel tests of purchasing power parity we investigate the implications of the choice of numeraire currency on panel tests of purchasing power parity under the current regime of flexible exchange rates by conducting panel unit root tests with twenty one different base currencies we show that the conditions necessary for numeraire irrelevancy are not supported empirically and that the choice of numeraire currency can and does matter for ppp the evidence of ppp is stronger for european than for non european base currencies distance between the countries and volatility of the exchange rates are the most important determinants of the results

price convergence reversal speed and purchasing power parity stylized facts for brazilian cities abstract this paper analyzes the price dynamics of brazilian cities between 1995 and 2012 to identify stylized facts about price convergence the reversal speed of deviations between relative prices and purchasing power parity ppp there is evidence of a strong reduction in the absolute dispersion of prices of brazilian cities and in the variability of relative prices the estimated half life of deviations from ppp reversal proved to be lower than those found for cross country data and american cities the results also indicate that the stationarity of the real exchange rate among the cities is rejected for all the series that presented a reversal speed to deviations from the ppp smaller than the average for each numerarie considered it is argued that the evidence of price convergence associated with a process of slow reversal speed of deviations from the ppp have influence on the non rejection of a unit root in the real exchange rate series for some cities however this fact does not constitute in itself evidence against the validity of the ppp

another perspective on changes in international inequality from 1950 to 1980 abstract real income data derived from the third phase of the international comparisons project are used to compute theil s population weighted indices of intercountry inequality for several years between 1950 and 1980 contrary to some recently reported results a substantial increase in inequality is observed internationally comparable consumption data indicate consumption inequality increased more than income inequality

price level co movements within currency unions an alternative integration metric this paper analyses currency union integration by testing whether price levels in member countries possess a common stochastic trend the trace statistic test for cointegration proposed by johansen 1995 demonstrates the presence of such a trend for most unions a disaggregated analysis identifies a common stochastic trend for several though fewer than half of country pairs within a union some unions such as the eurozone have small shares of cointegrated country pairs yet the share of cointegrated country pairs is large relative to countries outside currency unions comparison to a control group country pairs where one country belongs to a given union and the other country does not indicates that the cointegration found within a currency union is a union specific trait and not a feature of the individual countries within the union these results provide an alternative metric to intraunion trade for gauging the extent of currency union integration

intranational price convergence and price stickiness evidence from denmark we show that estimates of the half life of deviations from loop are biased when not taking into account the precision when aggregating over types of goods using a comprehensive dataset with monthly price data for 124 homogeneous products across regions in denmark over the period 1997 2010 we find a large positive aggregation bias on average we find that the half life is 8 4 months when taking the bias into account compared to 28 7 months when applying the standard method the heterogeneity in estimated half life can be explained by price stickiness distance between regions and whether the good is traded or non traded this article is protected by copyright all rights reserved

pricing energy and ancillary services in integrated market systems by an optimal power flow a detailed ac opf based formulation for procuring pricing and settling energy and ancillary service in simultaneous auctions by integrated market systems is presented the paper provides clear definitions of locational marginal prices for energy and ancillary service marginal prices in terms of lagrange multipliers the characteristics of the prices are analyzed especially when economic substitution among ancillary services is required the paper also evaluates the conditions under which opportunity costs are incurred to units that provide ancillary services it is particularly shown that the intuitive belief that the provision of regulation down service does not incur opportunity cost to the provider in general is not true

measuring regional cost of living accurate measures of regional cost of living are vital to businesses and individuals we compare a commonly used regional cost of living index produced by the american chamber of commerce research association accra to an index we calculate using consumer price index data and research from kokoski cardiff and moulton we find significant differences between the accra and the new indexes that are likely due to theoretical design data collection and sampling design the comparison of these indexes highlights sources of differences in regional cost of living measures and suggests caution in the use of accra indexes

price differentials in monetary unions the role of fiscal shocks we study the effect of regional expenditure and revenue shocks on price differentials for 47 us states and 9 eu countries we identify shocks using sign restrictions on the dynamics of expenditures revenues deficits and output and construct two estimates for structural price differentials dynamics one for the average and one for each unit which optimally weight information contained in the data for all units on average expansionary fiscal disturbances produce positive while distortionary balance budget shocks produce negative price differential responses the negative price differentials responses in some units is partially explained by spillovers and labour supply effects

the law of one price evidence from the transitional economy of china abstract this paper applies the recently developed econometric methods of panel unit root tests and nonlinear mean reversion to investigate price convergence in china the largest transitional economy in the world we find that prices did converge to the law of one price in china for an overwhelming majority of goods and services based on a large panel data set the finding sheds light on the extent of the market economy in china and casts doubt on young s proposition that the economic reform has led to the fragmentation of chinese domestic markets

dissecting the ppp puzzle the unconventional roles of nominal exchange rate and price adjustments the conventional view as expounded by sticky price models is that price adjustment determines the ppp reversion rate this study examines the mechanism by which ppp deviations are corrected nominal exchange rate adjustment not price adjustment is shown to be the key engine governing the speed of ppp convergence moreover nominal exchange rates are found to converge much more slowly than prices with the reversion being driven primarily by nominal exchange rates real exchange rates also revert at a slower rate than prices as identified by the ppp puzzle j econ lit 34 1996 647 c 2003 elsevier b v all rights reserved

wages rents and the quality of life this study focuses on the role of wages and rents in allocating workers to locations with various quantities of amenities the theory demonstrates that if the amenity is also productive then the sign of the wage gradient is unclear while the rent gradient is positive the theory is extended to include the housing market and nontraded goods these extensions require little modification of the conclusion the empirical work on wages shows that the regional wage differences can be explained largely by these local attributes with the use of site price data implicit prices are estimated and quality of life rankings for the cities are computed

consumer demand under price uncertainty empirical evidence from the market for cigarettes abstract we develop a demand model for goods that are subject to habit formation we show that consumption plans of forward looking individuals depend on preferences current period prices and ind

real exchange rate dynamics the role of elastic labor supply abstract empirical evidence suggests that the flexibility of labor supply is closely related to the dynamic adjustment of the real exchange rate this paper investigates this relationship in a two sector dependent economy model while the long run equilibrium real exchange rate is independent of the elasticity of labor supply our analysis confirms that the nature of the labor supply can be a crucially important determinant of its short run dynamics the extent to which this is so depends to some degree on the source of the underlying structural change that is driving the dynamics of the real exchange rate numerical simulations confirm that this mechanism may help explain the larger short run volatility and more rapid convergence typically associated with developing countries having less flexible labor markets

the relative efficiency of slave agriculture a comment in their book time on the cross fogel and engerman fe present evidence that average factor productivity was greater for larger southern slave farms in 1860 than for both free farms and smaller slave farms in a recent article field 1988 lends support to the fe theory by finding that an upward shift in the production function occurs for slave farms at 15 slaves the size at which fe propose that gang labour became feasible in a more recent article grabowski and pasurka gp contradict both fe and field by finding that there was no relationship between the size of slave farms and their efficiency the present paper extends both gp s and field s work and refines a point made by fe we distinguish between a technological advantage due to the gang labour system and revenue inefficiency due both to the incentive structure of slavery and the repugnance of gang labour two factors which foster rational shirking and resistance by slaves that is we propose that relative to small slave farms large slave f

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

what can us city price data tell us about purchasing power parity abstract we study the dispersion of absolute price levels for us cities since 1918 by absolute price levels we mean price indices that measure the cost of a given consumption basket at each point in time we find strong evidence that city price levels converge over time and that the dispersion of price levels is lower for us cities than between oecd countries we argue that price level convergence for us cities will produce bilateral real exchange rate nonstationarity in this case however nonstationarity is not evidence against purchasing power parity ppp rather it is the consequence of improved market integration

market failures of market coupling and counter trading in europe an illustrative model based discussion the horizontal integration of the energy market and the organization of transmission services remain two open issues in the restructured european electricity sector the coupling of the french belgian and dutch electricity markets the trilateral market in november 2006 was a real success the extension of the system to germany in november 2010 also proceeded smoothly and the intent is to continue with the same market architecture but market coupling is based on a zonal system which has often failed in meshed grids this may cast doubts on what will happen in the future when electricity demand picks up again and wind develops the nodal system has generally been more successful than zonal architectures but its implementation is not currently foreseen in the eu this paper analyzes versions of market coupling that differ by the organization of counter trading while underplayed in current discussions counter trading could become a key element of market coupling as its geographic coverage expands and wind penetrates we simplify matters by assuming away strategic behavior between the energy and counter trading markets and conduct the analysis on a stylized six node example taken from the literature we simulate market coupling for different assumptions of zonal decomposition and coordination of transmission system operators tsos we show that these assumptions matter even in the absence of strategic behavior market coupling can be quite vulnerable to the particular situation on hand countertrading can work well or completely fail and it is not clear beforehand what will prevail our analysis relies on standard economic notions such as social welfare and generalized nash equilibrium but the use of these notions is probably novel the nodal organization is the reference first best scenario different zonal decompositions and degrees of coordination are then studied with respect to this first best solution

unbiased estimation of the half life to price index convergence among u s cities estimates of the half life to convergence of prices across a panel of cities are subject to bias from three potential sources inappropriate cross sectional aggregation of heterogeneous coefficients presence of lagged dependent variables in a model with individual fixed effects and time aggregation of commodity prices this paper finds no evidence of heterogeneity bias in annual cpi data for 17 u s cities from 1918 to 2006 but correcting for the nickell bias and time aggregation bias produces a half life of 7 5 years shorter than estimates from previous studies

national price levels and the prices of tradables and nontradables this paper examines changes in national price levels and prices of tradables and nontradables and relates them to changes in variables found earlier to be associated with price level differences among countries across countries national price levels increase systematically with the level of a country s per capita income and the ratios of tradables to nontradables prices decrease over time increases in per capita income are generally associated with increases in price levels in the industrial countries although the opposite relationship tended to prevail among developing countries increases in income are associated with declines in the ratio of tradables to nontradables price levels more consistently than with the increases in general price levels increases in the exchange value of a currency are also associated with declines in the price levels for tradablesrelative to nontradables countries with price levels that were high or low relative to those predicted by the structural equations tended to move toward those predicted levels this abstract was borrowed from another version of this item

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

a short history of price level convergence in europe we study the evolution of price level dispersion in europe by combining time series information on harmonized indices of consumer prices hicps with occasional observations of absolute price levels we find that european price levels converged over much of the last 40 to 50 years in the united states our benchmark price level dispersion is more or less stable a back of the envelope calculation suggests that indirect tax rate harmonization convergence of nontraded input costs and convergence of traded input costs in the form of exchange rate stability and increased openness are all important in explaining european price level convergence

competition and inflation differentials in emu in a monetary union inflation rate differentials may be substantial over the business cycle this paper parameterizes a two country monetary union in which different economic structures in the two countries generate temporary inflation differentials cross country differences are introduced in i the elasticity of demand in the goods markets which cause producers to discriminate prices ii the degree of price inertia and iii the degree of openness or preference for foreign goods in consumption the model is calibrated to reproduce two average large emu countries and it is able to generate such inflation differentials we find the mechanism of price discrimination quantitatively more important than the differences in price inertia moreover under asymmetric shocks differences in the degree of openness such as those observed within the emu can have sizeable effects on the dispersion of inflation rates

multi country evidence on the behavior of purchasing power parity under the current float abstract using panel data for the united states and 22 other oecd countries for the current float this paper presents evidence that despite substantial short term perturbations purchasing power parity actually performed much better than commonly believed average rates of growth of real exchange rates over long horizons bear little relationship either to average rates of growth of nominal exchange rates or to average inflation differentials thus implying a close to one to one relation between average rates of growth of nominal exchange rates and average inflation differentials panel data variants of standard unit root tests suggest that the real exchange rates of these countries can be characterized as mean reverting

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

a panel project on purchasing power parity mean reversion within and between countries abstract previous time series studies have shown evidence of mean reversion in real exchange rates deviations from purchasing power parity ppp appear to have half lives of approximately four years however the long samples required for statistical significance are unavailable for most currencies and are potentially inappropriate because of regime changes in this study we re examine deviations from ppp using a panel of 150 countries and 45 annual post wwii observations our panel shows strong evidence of mean reversion that is similar to that from long time series ppp deviations are eroded at a rate of approximately 15 annually i e their half life is around four years such findings can be masked in time series data but are relatively easy to find in cross sections

an assessment of the danish german cross border auctions abstract this paper presents an analysis of the auction prices at the cross border auction between west denmark and germany and between east denmark and germany the kontek cable monthly and annual transmission capacities appear to be more highly valued than daily transmission capacity on average the two cross border auctions show different trends the auctions between west denmark and germany exhibit a higher level of prices in the southbound direction and between east denmark and germany higher prices in the northbound direction we find a relatively strong correspondence in the pricing of products over different time frames daily monthly and annual auctions between west denmark and germany and a weak correspondence for the products between east denmark and germany in the daily auctions market players can decide whether to use their capacity after the clearing of the day ahead market while in the monthly and annual auctions they must decide whether to use their capacity prior to clearing if they choose not to use their capacity the use it or lose it principle applies the capacity is then subsequently released to the daily market since the daily cross border auctions are free of commitment they should be valued as options likewise in the monthly and annual auctions market players can choose not to nominate their capacity but as this must occur before the clearing of the day ahead market they will not know the directions of the power flows a priori if they nominate the capacity they must use it if the direction turns out to be wrong it is then possible to purchase capacity in the opposite direction in the daily auctions if market players can accurately predict the outcome of the spot markets day ahead the value of monthly and annual capacity should more closely reflect the value of an option thus one would expect the value of the monthly and annual capacity to be between the value of an option and an obligation although this suggests that the average price of daily capacity should be greater than monthly and annual capacity our data do not support this hypothesis the daily monthly and annual capacity auctions do not reflect the value of the underlying asset as specified by the appropriate valuation of the energy price differentials between west denmark and germany and east denmark and germany therefore market players are exposed to substantial variation in fees for congestion management on the cross border we study whether arbitrage improves over time and discern no obvious trend since the explicit auction procedure has not been cost efficient a better approach appears to be the new market coupling arrangement introduced on the kontek cable and on the border between west denmark and germany with the result that market players will pay a congestion management fee i e area price difference equal to the energy price differential resulting from the market coupling mechanism

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

inefficient trade patterns excessive trade cross hauling and dumping abstract i study an example of a competitive environment in which trade occurs in a sequential manner in this example a country with a stable demand may suffer from trade with a country with unstable demand there may be too much trade a country may import and export the same good in the same period cross hauling and dumping may occur the timing of delivery is important when delivery occurs before trade delivery to stocks trade improves welfare there is dumping but no cross hauling when delivery occurs after trade delivery to order trade may reduce welfare and cross hauling may occur

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

accounting for u s real exchange rate changes this study measures the proportion of u s real exchange rate movements that can be accounted for by movements in the relative prices of nontraded goods the decomposition is done at all possible h

optimal self scheduling of a thermal producer in short term electricity markets by milp this paper addresses the problem of the self scheduling of a thermal electricity producer in day ahead energy and reserves markets a 0 1 mixed integer linear formulation of the producer self scheduling problem is provided which allows a realistic and accurate modeling of the unit s operating phases a novel unit start up modeling is presented in which three different start up types are modeled hot warm and cold each with distinct start up cost synchronization time soak time and predefined start up power output trajectories all dependent on the unit s prior reservation time test results address the effect of the energy and reserves market clearing prices on the producer units day ahead commitment status and profits

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

implicit auctioning on the kontek cable third time lucky implicit auctioning in europe is about eliminating cross border trade inefficiencies by internalizing crossborder trade into the day ahead auction procedures of the power exchanges that are already organizing trade nationally on the kontek cable implicit auctioning has first been implemented with no coupling between the relevant power exchanges followed by a volume coupling implementation and finally a one way price coupling implementation that is still operational today the main contribution of this paper is to compare the theoretical properties of these three implementations and to analyze their performance empirically we find that the third implementation is significantly outperforming the previous two implementations but in this third implementation stakeholders partly abandoned the volume coupling approach they initially believed to be a viable alternative and institutionally easier to implement

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

residual demand curves for modeling the effect of complex offering conditions on day ahead electricity markets residual demand curves rdcs can be used to represent the strategic interaction of participants in electricity markets rdcs relate the energy that an agent can buy or sell in one hour with the clearing market price that would be obtained in such hour assuming the market is organized as simple bid independent auctions despite the fact that they have been widely used in the literature the existence of time and or spatial constraints in the market clearing algorithm makes the rdcs not directly applicable this paper tries to overcome these difficulties by extending the concept of rdcs to zonal pricing markets where complex offering conditions and transmission constraints are taken into account therefore the rdcs are redefined in order to capture such effects which are usually neglected or oversimplified a new method for computing the redefined rdcs is established and its application to the iberian electricity market is presented the results show that modeling complex conditions and transmission constraints in rdcs can have a significant effect when compared to the standard approach found in the literature therefore the method presented in this paper modeling the effect of firm s decisions on market prices in a more accurate way

regional inflation persistence evidence from italy vaona a and ascari g regional inflation persistence evidence from italy regional studies regional patterns of inflation persistence have received attention only at the level of european monetary union member states however economic disparities within european monetary union member states are an equally important policy issue this paper considers a country with a large regional divide italy at a fine level of territorial disaggregation nuts 3 it is shown that economically backward regions display greater inflation persistence moreover higher persistence is linked to a lower degree of competitiveness in the retail sector finally the inflation persistence at the national level does not present any geographical aggregation bias because it equals the mean of inflation persistence of provincial data vaona a et ascari g la continuite de l inflation regionale des preuves provenant de l italie regional studies c est seulement par rapport aux pays membres de la zone euro que la distributio

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

divergent inflation rates in emu inflation divergence inflation rates have diverged much more widely than expected among the member states of the emu we show that much of this is attributable to the differential impact on different member states of the weakness of the euro on international currency markets in the early months of the union the balassa samuelson productivity growth effect has not yet played an important role even in respect of the outlier ireland although it will likely be more significant over a longer run especially as the accession countries join patrick honohan and philip lane