the canadian border and the us dollar the impact of exchange rate changes on us retailers this paper provides a micro level investigation into the impact of changes in the uscanada nominal exchange rate on retailers in us regions lying close to the uscanada border using a large data set on product level retail prices and sales in the united states over a nine year period we explore the links between changes in exchange rates cross border travel and the price and quantity responses of us retailers this allows us to assess the importance of geography and distance in affecting the pass through of exchange rate changes into prices and quantities at the level of the consumer we develop a two stage theoretical model of cross border travel and industry equilibrium for retail sales at the border our empirical results accord well with the implications of the model

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 gaps at the border evidence from multi country household scanner data abstract studies employing micro price data to examine the extent of international goods market integration tend to find that borders imply arbitrage impeding transaction costs inducing market segmentation within monetary unions these effects are found to be very minor though at least when online prices are considered however analyzing household scanner price data from three euro area member states belgium germany and the netherlands we document that households face and pay significantly different prices for identical goods across these countries in the vast majority around 75 of cases considered for regions within countries as a counterfactual however no evidence for such effects exists employing cross border shopping information we are able to draw direct conclusions about the question of integration of markets for a substantial number of goods in addition we can also derive a measure of border costs for most of them for goods for which no cross border shopping take place we provide a lower bound for border costs in the majority of cases in line with existing evidence our findings suggest considerable heterogeneities in border costs median values generally range between 15 and 20 of the price of a good for exact border cost estimates and between 18 and 20 for the derived lower bounds considering the distribution of values obtained suggests that most values lie in a range of 40 since our data set comprises purchase information from all major retailers present in a given market we are also able to examine the role of retailer heterogeneity for cross border price gap estimates differences in retailer composition turn out to be fairly small however grouping goods by various characteristics reveals that goods purchased more often tend to exhibit somewhat bigger border estimates considering the price or the goods category however does not yield any conclusive insights

revisiting the importance of non tradable goods prices in cyclical real exchange rate fluctuations abstract in an influential paper engel 1999 argues that essentially all the fluctuations in the real exchange rate can be attributed to fluctuations in the relative price of traded goods and that only a small part of the fluctuations can be attributed to changes in the relative price of non tradables we revisit this important issue and our main finding suggests that the relative distribution wedge i e the relationship between traded goods prices at the dock and the retail prices of those goods is key to understanding real exchange rate fluctuations importantly our results suggest that variations in the relative wedge are driven by fluctuations in mark ups and not in distribution costs

price dispersion and the border effect abstract cross country price differences could reflect regional market segmentation within countries or national segmentation at the border in a search based model of price setting identifying national versus regional segmentation requires data on regional trade flows a calibration to u s and canadian data implies predominantly regional frictions u s producers are three times more likely to sell in their home region than another u s region and canadian producers are seven times more likely to sell in their home region than another canadian region frictions vis a vis foreign regions are only slightly higher models that ignore regional segmentation can misstate the severity of frictions at the border

three questions about sunspot equilibria as an explanation of economic fluctuations it is by now well known that the sort of difference equations that characterize the equilibrium conditions of an infinite horizon competitive economy may have solutions in which the endogenous variables fluctuate in response to sunspot variables that is to random events that in fact have nothing to do with economic fundamentals and so do not directly affect the equilibrium conditions it is possible to view such sunspot equilibria as a representation of an actual phenomenon economic fluctuations not caused by exogenous shocks to fundamentals but rather by revisions of agents expectations in response to some event which revised expectations become self fulfilling early discussions of such solutions sometimes suggested that a more rigorous derivation of the requirements for equilibrium might yield additional restrictions that would eliminate the sunspot solutions from the set of true equilibria the demonstration by karl shell 1977 david cass 1981 and costas azariadis 1981 that sunspot equilibria can exist in a rigorously formulated intertemporal equilibrium model namely the overlapping generations model of samuelson has shown that this is not always the case nevertheless many economists remain skeptical about the reasonableness of the sunspot hypothesis as a possible explanation of actual economic fluctuations and for quite general reasons independent of judgments about the empirical plausibility of any particular models i discuss here three such general reasons for skepticism

do we underestimate the benefits of cultural competition economic globalization has drawn fresh attention to cultural issues the uruguay round of trade negotiations debated whether there should be a protectionist cultural exception for television and movies as practiced by the french canadians brazilians south koreans and chinese to varying degrees governments around the world subsidize culture in part to favor one national tradition over potential competitors more generally cultural questions are central to broader critiques of trade and globalization cowen 2002 current analyses however have neglected some insights from economics we will suggest that market competition across cultures is desirable and favors relevant notions of diversity an underlying theme is that individuals hold unjustified prejudices or in economic jargon systematically biased beliefs about globalization

exchange rates and prices the adjustment of relative prices to exchange rate movements is explained in an industrial organization approach given labor costs in the respective currencies exchange rate movements change costs for firms selling in the home market and thus disturb the industry equilibrium the extent of absolute and relative price adjustment is shown to depend on market integration product substitutability the relative number of domestic and foreign firms and the market structure the impact of exchange rates on prices is illustrated in a variety of approaches including the cournot a dixit and j stiglitz 1977 and s salop 1979 models some empirical evidence is offered in support of the theory copyright 1987 by american economic association

international prices costs and markup differences relative cross border retail prices in a common currency comove closely with the nominal exchange rate using product level prices and wholesale costs from a grocery chain operating in the united states and canada we decompose this variation into relative costs and markup components the high correlation of nominal and real exchange rates is driven mainly by changes in relative costs national borders segment markets retail prices respond to changes in costs in neighboring stores within the same country but not across the border prices have a median discontinuous change of 24 percent at the border and 0 percent at state boundaries jel f31 l11 l81

bias in reduced form estimates of pass through we show that in general consistent estimates of cost pass through are not obtained from reduced form regressions of price on cost we derive a formal approximation for the bias that arises even under standard orthogonality conditions we provide guidance on the conditions under which bias may frustrate inference

borders and big macs i measure the extent of international market segmentation using local national and international big mac prices i show that the bulk of time series price volatility observed across the united states arises between neighboring locations using these data i provide new estimates of border frictions for 14 countries i find that borders generally introduce only small price wedges far smaller than those observed across neighboring locations when expressing these wedges in terms of distance equivalents i find that border widths are small in relation to price variations observed across the united states this suggests that international markets are well integrated

internal borders ethnic based market segmentation in malawi summary ethnic diversity is associated with poorer economic development but why i argue that market segmentation is one mechanism linking diversity to economic underdevelopment when ethnic groups are geographically segregated and trust is concentrated within groups markets will be tend to be segmented along ethnic lines i evaluate this argument using maize price data from seventy malawian markets over 14 years and combine it with census data on the spatial distribution of ethnic groups i find that maize price differences a key indicator of market segmentation are indeed larger for ethnically dissimilar markets even after taking sub national administrative borders geographic barriers and climatic differences into account these statistical findings are complemented by interview data from farmers and traders in three markets across malawi which highlight the centrality of trust in small scale maize trading as well as a preference for coethnic trading partners together these findings suggest that ethnic diversity and ethnoregional segregation in particular can have a negative impact on market integration an important driver of food security and long term economic development

retailers strategies and food price dynamics evidence from dairy scanner data abstract we investigate the relationship between retailers strategies and dairy price dynamics using high frequency italian scanner data for different dairy products we compute a weekly drift free price index specific for product category chain and type of store exploiting the unbalanced panel data structure to control for unobservable strategies by chain time and type of store we test if unobservables are statistically significant in influencing the price dynamics of each of the products covered by our analysis in general chain and type of store specific unobservables play a significant role moreover we identify the role of some observable strategic variables in controlling or in stimulating price inflation rates we obtain mixed results on the relationship between private label pl market shares and price trend while we find price promotions to be more effective if applied to national brands nbs rather than pls we conclude with some implications for the potential role of public policies in controlling food inflation

explaining time variation in geographic price dispersion the pattern of price dispersion significantly varies over time and across locations using a detailed dataset with product level retail prices we examine the role of time varying factors in shapin

the law of one price in scandinavian duty free stores many empirical studies have rejected the law of one price that prices of a good differ across locations has been explained by differences in product attributes and costs of local inputs transport costs trade barriers and that buyers have imperfect information about prices in different locations see penelopi k goldberg and michael m knetter 1997 for a survey we examine the law of one price in situations where none of the mentioned reasons for its failure can be invoked it has also been suggested that deviations from the law of one price are a consequence of rigid nominal prices and that different countries typically have different currencies we explore whether this can contribute to our understanding of deviations from the law of one price our data are taken from three scandinavian duty free outlets where each product at the same location has price tags in at least two currencies hence a consumer has the option to choose between several prices for the same identical good in such a setting there is a strong prior that the law of one price lop hereafter holds well however the potential for arbitrage will arise because nominal prices are not continuously adjusted while exchange rates fluctuate daily based on standard tests we reject lop at all duty free outlets given that lop does not hold here it is less surprising that many previous studies have found that prices of similar products at different locations differ significantly nevertheless the main conclusion of the paper is that in this natural experiment lop remains a useful guide to the behavior of relative prices as deviations become large nominal prices are adjusted to reduce the deviations from lop thereby limiting arbitrage opportunities the patterns at the duty free outlets suggest that there is a band of inaction so that small deviations from lop may persist for almost a decade in one case but that large deviations quickly lead firms to adjust relative prices the findings are consistent with costly arbitrage and fixed costs of adjusting nominal prices

global versus local shocks in micro price dynamics a number of recent papers point to the importance of distinguishing between the price reaction to macro and micro shocks we emphasize instead the importance of distinguishing between global and local shocks we exploit a panel of 276 micro price levels collected on a semi annual frequency over two decades in 59 countries around the world that enables us to distinguish between different types global and local of macro and micro shocks we find that global macro and micro shocks are always associated with a slower response of prices than the respective local shocks focusing on structural monetary macro shocks we show that prices reach their long run value much slower in response to a global macro shock as compared to the time it takes for prices to reach their long run value in response to a local macro shock

double marginalization and cost pass through weyl fabinger and cowan meet spengler and bresnahan reiss consider the classical double marginalization problem of single product successive monopolies we show that the ratio of the cost pass through at the final sale relative to that at the wholesale level is characterized by the curvature of inverse demand in the final market we also apply cowan s 2012 method which utilizes the idea of pass through in an analysis of third degree price discrimination to compare consumer surplus under vertical integration and separation

border prices and retail prices abstract we analyze retail prices and at the dock import prices of specific items in the bureau of labor statistics bls cpi and ipp databases using both databases simultaneously to identify items that are identical in description at the dock and when sold at retail this identification allows us to measure the distribution wedge associated with bringing traded goods from the point of entry into the united states to their retail outlet we find that overall u s distribution wedges are 50 70 around 10 to 20 percentage points higher than that reported in the literature we discuss the implications of this for measuring the size of the pure tradeables sector exchange rate pass through and real exchange rate determination we find that distribution wedges are very stable over time but there is considerable variation across items there is some variation across the country of origin for the imported item for our major trading partners but not as much as the cross item variation we also investigate the determinants of distribution wedges finding that wedges do not vary systematically with exchange rates but are related to other features of the micro data

pass through vertical contracts and bargains abstract this paper analyzes the determinants of pass through that are specific to vertical relationships between wholesalers and retailers the type of vertical agreement firms contract upon as well as their relative bargaining power are identified as major determinants of pass through rates

the evolution of price dispersion in the european car market car prices in europe are characterized by large and persistent differences across countries the purpose of this paper is to document and explain this price dispersion using a panel data set extending from 1980 to 1993 we first demonstrate two main facts concerning car prices in europe i the existence of significant differences in quality adjusted prices across countries with italy and the u k systematically representing the most expensive markets 2 substantial year to year volatility that is to a large extent accounted for by exchange rate fluctuations and the incomplete response of local currency prices to these fluctuations these facts are analysed within the framework of a multiproduct oligopoly model with product differentiation the model identifies three potential sources for the international price differences price elasticities generating differences in markups costs and import quota constraints local currency price stability can be attributed either to the presence of a local component in marginal costs or to markup adjustment that is correlated with exchange rate volatility the latter requires that the perceived elasticity of demand is increasing in price we find that the primary reason for the higher prices in italy is the existence of a strong bias for domestic brancs that generates high markups for the domestic firm fiat in the u k higher prices are mainly attributed to better equipped cars and or differences in the dealer discount practices the import quota constraints are found to have a significant impact on japanese car prices in italy france and the u k with respect to local currency price stability a large percentage of the documented price inertia can be attributed to local costs and a smaller fraction to markup adjustment that is indicative of price discrimination based on these results we conjecture that the emu will substantially reduce the year to year volatility observed in the car price data but without further measures to increase european integration it will not completely eliminate existing cross country price differences

pass through in a concentrated industry empirical evidence and regulatory implications we estimate pass through with thirty years of data from a concentrated industry the empirical model accounts for oligopoly interactions yet facilitates estimation with aggregate price data robust statistical evidence supports that industry wide cost changes are more than completely transmitted downstream and that this industry pass through is largely unaected by competitive conditions the industry in question portland cement is a major focus of environmental and antitrust regulators we use our pass through estimates to i evaluate the welfare consequences of marketbased co2 regulation ii predict the magnitude and location of price eects due to a merger under review by antitrust authorities and iii corroborate the simulation based analysis of the epa regarding its impending regulation of local pollutants

trade credit and systemic fragility this paper treats an idealized monetary framework in which merchant banks finance trade trade which is induced by decentralized production indeed merchant bank credit instruments coupled with local bank deposits facilitate decentralization of both production and trade at the same time decentralized production exhibiting technological complementarity induces systemic monetary fragility however with the decentralization of trade the indemnification of either merchant bank credit instruments or of local bank deposits eliminates fragility in particular deposit insurance also stabilizes credit the result is a stable cashless economy a replacement of trade in specie 2002 elsevier science b v all rights reserved

real exchange rate fluctuations and the dynamics of retail trade industries on the u s canada border consumers living near the u s canada border can shift their expenditures between the two countries so real exchange rate fluctuations can act as demand shocks to border areas retail trade industries using annual county level data we estimate the effects of real exchange rates on the number of establishments and their average payroll in border counties for four retail industries in three of the four industries we consider the number of operating establishments responds either contemporaneously or with a lag of one year to real exchange rate movements for these industries the response of retailers average size is less pronounced the rapid response of net entry is inconsistent with any model of persistent deviations from purchasing power parity that depends on retailers costs of changing nominal prices

price setting in online markets basic facts international comparisons and cross border integration we document basic facts about prices in online markets in the united states and canada which is a rapidly growing segment of the retail sector relative to prices in regular stores prices in online markets are more flexible and exhibit stronger pass through 60 75 percent and faster convergence half life less than two months in response to movements of the nominal exchange rate multiple margins of adjustment are active in the process of responding to nominal exchange rate shocks properties of goods sellers and markets are systematically related to pass through and the speed of price adjustment for international price differentials

uniform pricing in us retail chains we show that most u s food drugstore and mass merchandise chains charge nearly uniform prices across stores despite wide variation in consumer demographics and competition demand estimates reveal substantial within chain variation in price elasticities and suggest that the median chain sacrifices 16 million of annual profit relative to a benchmark of optimal prices in contrast differences in average prices between chains are broadly consistent with the optimal benchmark we discuss a range of explanations for nearly uniform pricing highlighting managerial inertia and brand image concerns as mechanisms frequently mentioned by industry participants relative to our optimal benchmark uniform pricing may significantly increase the prices paid by poorer households relative to the rich dampen the response of prices to local economic shocks alter the analysis of mergers in antitrust and shift the incidence of intranational trade costs

the role of prices in measuring the poor s living standards in this paper we revisit two pieces of conventional wisdom in the current debate about poverty paying close attention to the price data underlying these findings that the poor pay more than households of higher income for the goods and services they purchase and that poverty rates at least as measured by the u s census have remained essentially flat since the late 1960s raising questions about the success of the policies implemented to reduce poverty by examining scanner data on thousands of household purchases we find that the poor pay less not more for the goods they purchase and by extending the advances on price measurement in the recent decade back to the 1970s we find that current poverty rates are less than half of the official numbers

accounting for incomplete pass through recent theoretical work has suggested a number of potentially important factors in causing incomplete pass through of exchange rates to prices including markup adjustment local costs and barriers to price adjustment we empirically analyze the determinants of incomplete passthrough in the coee industry the observed pass through in this industry replicates key features of pass through documented in aggregate data prices respond sluggishly and incompletely to changes in costs we use microdata on sales and prices to uncover the role of markup adjustment local costs and barriers to price adjustment in determining incomplete pass through using a structural oligopoly model that nests all three potential factors the implied pricing model explains the main dynamic features of short and long run pass through local costs reduce long run pass through by a factor of 59 relative to a ces benchmark markup adjustment reduces pass through by an additional factor of 33 where the extent of markup adjustment depends on the estimated super elasticity of demand the estimated menu costs are small 0 23 of revenue and have a negligible eect on long run pass through but are quantitatively successful in explaining the delayed response of prices to costs we nd that delayed passthrough in the coee industry occurs almost entirely at the wholesale rather than the retail level

what drives local food prices evidence from the tanzanian maize market this study quantifies the relationship between tanzanian and external maize markets while also accounting for domestic influences it concludes that external influences on domestic prices originate from regional rather than global markets it also shows that compared to external factors domestic factors exert a greater influence on tanzanian maize markets further the mechanisms through which trade policies influence maize markets involve interactions with both external market shocks and domestic weather shocks overall it provides evidence that the intermittent imposition of export bans in tanzania has had adverse impacts on its maize markets and consequently on the development of its agrarian economy

on the importance of sectoral and regional shocks for price setting summary we use novel disaggregate sectoral regional euro area data to investigate the sources of price changes introducing a new method to extract factors from overlapping data blocks that allows for estimation of aggregate sectoral country specific and regional components of price changes our sectoral component explains much less variation in disaggregate inflation rates and exhibits much less volatility and more persistence than previous findings for the us indicate country and region specific factors play an important role emphasizing heterogeneity of inflation dynamics along both sectoral and geographical dimensions our results are incompatible with basic sticky information or calvo type price setting models but require multi sector multi country models copyright 2015 john wiley sons ltd

hysteresis price acceptance and reference prices the existence of price thresholds in grocery retailing is well documented most authors explain the existence of price thresholds using assimilation contrast theory adaptation level theory or prospect theory however each of these theories is untenable if consumers are believed to behave rationally we offer a theoretical explanation grounded in real options theory rot and economic hysteresis we test the rot hypothesis against three plausible alternatives using a maximum likelihood friction model that we augment for unobserved heterogeneity our findings support the rot hypothesis and suggest that the existence of price thresholds in aggregate data are driven by a common recognition of real option values which do not disappear with the inclusion of consumer heterogeneity

the economics of cross border travel abstract we model the decision to travel across an international border as a trade off between benefits derived from buying a range of products at lower prices and the costs of travel we estimate the model using microdata on canada united states travel price differences motivate cross border travel a 10 home appreciation raises the propensity to cross by 8 to 26 the larger elasticity arises when the home currency is strong a result predicted by the model distance to the border strongly inhibits crossings with an implied cost of 87 cents per mile geographic differences can partially explain why american travel is less exchange rate responsive

financial crises and coordination failure a comment abstract the three papers of this session link financial crises explicitly or implicitly to coordination failure in bryant journal of banking and finance 2002 the possibility of coordination failure is due to complementarity in the productive technology in chui et al journal of banking and finance 2002 foreign lenders to a small country fail to coordinate on the optimal strategy rolling over short term loans finally amable et al journal of banking and finance 2002 implicitly introduce coordination failure through a production function with external increasing returns to scale this sort of thick markets externality can be viewed as a reduced form that stands for coordination problems in a non walrasian economy