The Geography of Consumer Prices
AbstractWe argue that the underlying width of the border in international price determination is a trivial fraction of the corresponding Engel and Rogers (1996) reduced form estimate. We develop a two-country, multi-region, dynamic, stochastic equilibrium model of monopolistic competition with costly price adjustment and cross-location shopping. The optimal price is proportional to a weighted average of market prices, with weights negatively related to shopping costs. We calibrate structural distance and border parameters to a unique panel of store-level prices, and conclude that price adjustment costs directly account for about a quarter of the reduced form border width.
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Bibliographic InfoPaper provided by Society for Economic Dynamics in its series 2012 Meeting Papers with number 799.
Date of creation: 2012
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- NEP-ALL-2013-06-09 (All new papers)
- NEP-DGE-2013-06-09 (Dynamic General Equilibrium)
- NEP-OPM-2013-06-09 (Open Economy Macroeconomic)
- NEP-URE-2013-06-09 (Urban & Real Estate Economics)
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- repec:cfs:cfswop:wp200713 is not listed on IDEAS
- Marcus Asplund & Richard Friberg, 2001. "The Law of One Price in Scandinavian Duty-Free Stores," American Economic Review, American Economic Association, vol. 91(4), pages 1072-1083, September.
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