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Global price dispersion: are prices converging or diverging?

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Author Info
Paul R. Bergin
Reuven Glick

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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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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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This paper has been announced in the following NEP Reports: References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Corsetti, Giancarlo & Dedola, Luca, 2005. "A macroeconomic model of international price discrimination," Journal of International Economics, Elsevier, vol. 67(1), pages 129-155, September. [Downloadable!] (restricted)
  2. Hummels, David, 2001. "Time as a Trade Barrier," GTAP Working Papers 1152, Center for Global Trade Analysis, Department of Agricultural Economics, Purdue University. [Downloadable!]
  3. Mario J. Crucini & Mototsugu Shintani, 2002. "Persistence in Law-Of-One-Price Deviations: Evidence from Micro-Data," Working Papers 0616, Department of Economics, Vanderbilt University, revised Jul 2006. [Downloadable!]
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  4. Charles Engel & John H. Rogers, 2004. "European product market integration after the euro," Economic Policy, CEPR, CES, MSH, vol. 19(39), pages 347-384, 07. [Downloadable!] (restricted)
  5. Reuven Glick & Xueyan Guo & Michael Hutchison, 2006. "Currency Crises, Capital-Account Liberalization, and Selection Bias," The Review of Economics and Statistics, MIT Press, vol. 88(4), pages 698-714, November. [Downloadable!] (restricted)
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  6. 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 777, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  7. Mario J. Crucini & Chris I. Telmer & Marios Zachariadis, 2005. "Understanding European Real Exchange Rates," American Economic Review, American Economic Association, vol. 95(3), pages 724-738, June. [Downloadable!]
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  8. Paul R. Bergin & Reuven Glick, 2005. "Tradability, productivity, and understanding international economic integration," Working Paper Series 2005-13, Federal Reserve Bank of San Francisco. [Downloadable!]
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  9. David Parsley Shang-Jin Wei, 2002. "Currency Arrangements And Goods Market Integration: A Price Based Approach," International Finance 0211004, EconWPA. [Downloadable!]
  10. Mario Crucini & Chris Telmer & Marios Zachariadis, 2005. "Price Dispersion: The Role of Distance, Borders and Location," 2005 Meeting Papers 767, Society for Economic Dynamics.
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  1. 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. [Downloadable!]
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