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Understanding Long-run Price Dispersion

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  • Hakan Yilmazkuday

    ()
    (Department of Economics, Florida International University)

  • Mario J. Crucini

    ()
    (Department of Economics, Vanderbilt University)

Abstract

A unique panel of retail prices spanning 123 cities in 79 countries from 1990 to 2005 is used to uncover the novel properties of long-run international price dispersion. At the PPP level, almost all of price dispersion is attributed to unskilled wage dispersion. At the level of individual goods and services, the average contribution of these wages is signi?cantly reduced, ref?ecting that good-speci?c sources of price dispersion, such as trade costs and good-specifi?c markups, tend to average out across goods. At the LOP level, borders and distance contribute about equally to price dispersion that is rising in the distribution share.

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File URL: http://economics.fiu.edu/research/working-papers/2014/1407/1407.pdf
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Bibliographic Info

Paper provided by Florida International University, Department of Economics in its series Working Papers with number 1407.

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Length: 33 pages
Date of creation: Apr 2014
Date of revision:
Handle: RePEc:fiu:wpaper:1407

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Keywords: Real exchange rates; Purchasing Power Parity; Law of One Price; Dynamic panel;

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References

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  1. Mario J. Crucini & Anthony Landry, 2012. "Accounting for Real Exchange Rates Using Micro-data," NBER Working Papers 17812, National Bureau of Economic Research, Inc.
  2. Ariel Burstein & Martin Eichenbaum & Sergio Rebelo, 2004. "Large Devaluations and the Real Exchange Rate," RCER Working Papers 513, University of Rochester - Center for Economic Research (RCER).
  3. Sanyal, Kalyan K & Jones, Ronald W, 1982. "The Theory of Trade in Middle Products," American Economic Review, American Economic Association, vol. 72(1), pages 16-31, March.
  4. Mario J. Crucini & Mototsugu Shintani, 2002. "Persistence in Law-Of-One-Price Deviations: Evidence from Micro-Data," Vanderbilt University Department of Economics Working Papers 0222, Vanderbilt University Department of Economics, revised Jul 2004.
  5. Engel, Charles & Rogers, John H, 1996. "How Wide Is the Border?," American Economic Review, American Economic Association, vol. 86(5), pages 1112-25, December.
  6. George Alessandria & Joseph P. Kaboski, 2011. "Pricing-to-Market and the Failure of Absolute PPP," American Economic Journal: Macroeconomics, American Economic Association, vol. 3(1), pages 91-127, January.
  7. Mario J. Crucini & Hakan Yilmazkuday, 2009. "A model of international cities: implications for real exchange rates," Globalization and Monetary Policy Institute Working Paper 38, Federal Reserve Bank of Dallas.
  8. Ariel T. Burstein & Joao C. Neves & Sergio Rebelo, 2000. "Distribution Costs and Real Exchange Rate Dynamics During Exchange-Rate-Based Stabilizations," RCER Working Papers 473, University of Rochester - Center for Economic Research (RCER).
  9. Burstein, Ariel & Eichenbaum, Martin & Rebelo, Sergio, 2007. "Modeling exchange rate passthrough after large devaluations," Journal of Monetary Economics, Elsevier, vol. 54(2), pages 346-368, March.
  10. Mario Crucini & Chris Telmer & Marios Zachariadis, . "Understanding European Real Exchange Rates," GSIA Working Papers 227, Carnegie Mellon University, Tepper School of Business.
  11. Peter Kennedy, 2003. "A Guide to Econometrics, 5th Edition," MIT Press Books, The MIT Press, edition 5, volume 1, number 026261183x, December.
  12. Berthold Herrendorf & Akos Valentinyi, 2005. "Which Sectors Make the Poor Countries so Unproductive?," IEHAS Discussion Papers 0519, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences.
  13. George Alessandria, 2004. "International Deviations From The Law Of One Price: The Role Of Search Frictions And Market Share," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 45(4), pages 1263-1291, November.
  14. Bela Balassa, 1964. "The Purchasing-Power Parity Doctrine: A Reappraisal," Journal of Political Economy, University of Chicago Press, vol. 72, pages 584.
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Cited by:
  1. 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.
  2. Ina Simonovska & Michael Waugh, 2011. "The Elasticity of Trade: Estimates and Evidence," Working Papers 112, University of California, Davis, Department of Economics.

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