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Global price dispersion: are prices converging or diverging?

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  • Paul R. Bergin
  • Reuven Glick

Abstract

This paper documents significant time-variation in the degree of global price convergence over the last two decades. In particular, there appears to be a general U-shaped pattern with price dispersion first falling and then rising in recent years, a pattern which is remarkably robust across country groupings and commodity groups. This time-variation is difficult to explain in terms of the standard gravity equation variables common in the literature, as these tend not to vary much over time or have not risen in recent years. However, regression analysis indicates that this time-varying pattern coincides well with oil price fluctuations, which are clearly time-varying and have risen substantially since the late 1990s. As a result, this paper offers new evidence on the role of transportation costs in driving international price dispersion.

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Bibliographic Info

Paper provided by Federal Reserve Bank of San Francisco in its series Working Paper Series with number 2006-50.

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Date of creation: 2006
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Handle: RePEc:fip:fedfwp:2006-50

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Keywords: Prices;

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References

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  1. Paul Bergin & Reuven Glick, 2005. "Tradability, Productivity, and Understanding International Economic Integration," Working Papers, University of California, Davis, Department of Economics 514, University of California, Davis, Department of Economics.
  2. Glick, Reuven & Guo, Xueyan & Hutchison, Michael M., 2004. "Currency Crises, Capital Account Liberalization, and Selection Bias," Santa Cruz Department of Economics, Working Paper Series qt12t6x2ht, Department of Economics, UC Santa Cruz.
  3. James E. Anderson & Eric van Wincoop, 2004. "Trade Costs," Boston College Working Papers in Economics, Boston College Department of Economics 593, Boston College Department of Economics.
  4. Mario Crucini & Chris Telmer & Marios Zachariadis, . "Understanding European Real Exchange Rates," GSIA Working Papers, Carnegie Mellon University, Tepper School of Business 227, Carnegie Mellon University, Tepper School of Business.
  5. Corsetti, Giancarlo & Dedola, Luca, 2005. "A macroeconomic model of international price discrimination," Journal of International Economics, Elsevier, Elsevier, vol. 67(1), pages 129-155, September.
  6. Reuven Glick & Andrew K. Rose, 2001. "Does a currency union affect trade? the time series evidence," Working Paper Series, Federal Reserve Bank of San Francisco 2001-13, Federal Reserve Bank of San Francisco.
  7. Mario J. Crucini & Mototsugu Shintani, 2006. "Persistence in Law-of-One-Price Deviations: Evidence from Micro-data," Levine's Bibliography 321307000000000311, UCLA Department of Economics.
  8. David Parsley Shang-Jin Wei, 2002. "Currency Arrangements And Goods Market Integration: A Price Based Approach," International Finance, EconWPA 0211004, EconWPA.
  9. Lothian, James R., 2006. "Institutions, capital flows and financial integration," Journal of International Money and Finance, Elsevier, Elsevier, vol. 25(3), pages 358-369, April.
  10. Charles Engel & John H. Rogers, 2004. "European product market integration after the euro," Economic Policy, CEPR;CES;MSH, CEPR;CES;MSH, vol. 19(39), pages 347-384, 07.
  11. David Hummels & Georg Schaur, 2012. "Time as a Trade Barrier," NBER Working Papers 17758, National Bureau of Economic Research, Inc.
  12. Mario Crucini & Chris Telmer & Marios Zachariadis, 2005. "Price Dispersion: The Role of Distance, Borders and Location," 2005 Meeting Papers, Society for Economic Dynamics 767, Society for Economic Dynamics.
  13. Charles Engel & John H. Rogers & Shing-Yi B. Wang, 2003. "Revisiting the Border: an assessment of the law of one price using very disaggregated consumer price data," International Finance Discussion Papers, Board of Governors of the Federal Reserve System (U.S.) 777, Board of Governors of the Federal Reserve System (U.S.).
  14. Hummels, David, 1999. "Toward a Geography of Trade Costs," GTAP Working Papers 1162, Center for Global Trade Analysis, Department of Agricultural Economics, Purdue University.
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Cited by:
  1. David von Below & Pierre-Louis Vezina, 2013. "The Trade Consequences of Pricey Oil," OxCarre Working Papers, Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford 115, Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford.
  2. Don Bredin & John Elder & Stilianos Fountas, 2010. "Oil Volatility and the Option Value of Waiting: An analysis of the G-7," Working Papers, Geary Institute, University College Dublin 201004, Geary Institute, University College Dublin.
  3. Yin-Wong Cheung & Eiji Fujii, 2008. "Deviations from the Law of One Price in Japan," CESifo Working Paper Series 2275, CESifo Group Munich.
  4. Jiøí Schwarz, 2011. "Impact of Institutions on Cross-Border Price Dispersion," Working Papers IES, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies 2011/30, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised Sep 2011.
  5. Jan-Egbert Sturm & Ulrich Fritsche & Michael Graff & Michael Lamla & Sarah Lein & Volker Nitsch & David Liechti & Daniel Triet, 2009. "The euro and prices: changeover-related inflation and price convergence in the euro area," European Economy - Economic Papers, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission 381, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.
  6. Parsley, David & Wei, Shang-jin, 2007. "In Search of a Euro Effect: Big Lessons from a Big Mac Meal?," MPRA Paper 6041, University Library of Munich, Germany.
  7. Lawrence Edwards & Neil Rankin, 2012. "Is Africa Integrating? Evidence from Product Markets," Working Papers 292, Economic Research Southern Africa.
  8. Neil Balchin, Lawrence Edwards and Asha Sundaram, 2014. "A Disaggregated Analysis of Product Price Integration in the Southern African Development Community," Working Papers 421, Economic Research Southern Africa.
  9. Mario J. Crucini & Christopher I. Telmer, 2012. "Microeconomic Sources of Real Exchange Rate Variability," NBER Working Papers 17978, National Bureau of Economic Research, Inc.

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