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Consumer Search, Price Dispersion, And International Relative Price Fluctuations

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George Alessandria

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Abstract

This article develops a model of consumer search consistent with the evidence of substantial price dispersion and time spent shopping within countries to study international deviations from the law of one price (LOP) and relative price fluctuations. Search frictions lead firms to price discriminate across markets based on the opportunity cost of search, which depends on the local wage. With productivity and taste shocks estimated from the data, deviations from the LOP are as volatile and persistent as in the data. Fluctuations in relative wages, real exchange rates, and the terms of trade are also consistent with the data. Copyright © (2009) by the Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

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File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1468-2354.2009.00549.x
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Publisher Info
Article provided by Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association in its journal International Economic Review.

Volume (Year): 50 (2009)
Issue (Month): 3 (08)
Pages: 803-829
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Handle: RePEc:ier:iecrev:v:50:y:2009:i:3:p:803-829

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This page was last updated on 2009-12-17.

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