Advanced Search
MyIDEAS: Login

Currency Arrangements And Goods Market Integration: A Price Based Approach

Contents:

Author Info

  • David Parsley Shang-Jin Wei

Abstract

Recent studies of the effect of currency arrangements on goods market integration (starting with Rose, 2000) employ a methodology based on volumes of trade. However, the connection between market integration and trade flows can be loose. In this paper, we adopt a different methodology that uses a 3-dimensional panel of prices of 95 very disaggregated goods (e.g., light bulbs) in 83 cities around the world from 1990 to 2000. We find that the impact of an institutionalized stabilization of the exchange rate, i.e., a currency board or a currency union, generally provides a stimulus to goods market integration that goes far beyond reducing exchange rate volatility to zero. However, there are important exceptions. Among the institutional arrangements, long-term currency unions demonstrate greater integration than more recent currency boards. All of them can improve their integration further relative to a U.S. benchmark.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://128.118.178.162/eps/if/papers/0211/0211004.pdf
Download Restriction: no

Bibliographic Info

Paper provided by EconWPA in its series International Finance with number 0211004.

as in new window
Length: 46 pages
Date of creation: 11 Nov 2002
Date of revision:
Handle: RePEc:wpa:wuwpif:0211004

Note: Type of Document - pdf; prepared on IBM PC - PC-TEX/UNIX Sparc TeX; to print on HP/PostScript/Franciscan monk; pages: 46; figures: included/request from author/draw your own
Contact details of provider:
Web page: http://128.118.178.162

Related research

Keywords: goods market integration; band of deviations from Law of One Price;

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

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.:
as in new window
  1. Alberto Alesina & Robert J. Barro, 2000. "Currency Unions," NBER Working Papers 7927, National Bureau of Economic Research, Inc.
  2. Engel, C., 1996. "Accounting for U.S. Real Exchange Rate Changes," Working Papers 96-02, University of Washington, Department of Economics.
  3. Charles Engel & John H. Rogers, 1995. "How wide is the border?," International Finance Discussion Papers 498, Board of Governors of the Federal Reserve System (U.S.).
  4. Michael W. Klein, 2002. "Dollarization and Trade," NBER Working Papers 8879, National Bureau of Economic Research, Inc.
  5. Andrew K. Rose, 1999. "One Money, One Market: Estimating the Effect of Common Currencies on Trade," NBER Working Papers 7432, National Bureau of Economic Research, Inc.
  6. Engel, Charles M & Rose, Andrew K, 2001. "Currency Unions and International Integration," CEPR Discussion Papers 2659, C.E.P.R. Discussion Papers.
  7. Frankel, Jeffrey & Rose, Andrew K., 2001. "An Estimate of the Effect of Common Currencies on Trade and Income," Working Paper Series rwp01-013, Harvard University, John F. Kennedy School of Government.
  8. Mussa, Michael, 1986. "Nominal exchange rate regimes and the behavior of real exchange rates: Evidence and implications," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 25(1), pages 117-214, January.
  9. Obstfeld, Maurice & Taylor, Alan M., 1997. "Nonlinear Aspects of Goods-Market Arbitrage and Adjustment: Heckscher's Commodity Points Revisited," Journal of the Japanese and International Economies, Elsevier, vol. 11(4), pages 441-479, December.
  10. Paul G. J. O'Connell & Shang-Jin Wei, 1997. ""The Bigger They Are, The Harder They Fall": How Price Differences Across U.S. Cities Are Arbitraged," NBER Working Papers 6089, National Bureau of Economic Research, Inc.
  11. Alan M. Taylor, 2000. "Potential Pitfalls for the Purchasing-Power-Parity Puzzle? Sampling and Specification Biases in Mean-Reversion Tests of the Law of One Price," NBER Working Papers 7577, National Bureau of Economic Research, Inc.
  12. John H. Rogers, 2001. "Price level convergence, relative prices, and inflation in Europe," International Finance Discussion Papers 699, Board of Governors of the Federal Reserve System (U.S.).
  13. Martin Feldstein, 1998. "The Political Economy of the European Economic and Monetary Union: Political Sources of an Economic Liability," NBER Working Papers 6150, National Bureau of Economic Research, Inc.
  14. McCallum, John, 1995. "National Borders Matter: Canada-U.S. Regional Trade Patterns," American Economic Review, American Economic Association, vol. 85(3), pages 615-23, June.
  15. Richardson, J. David, 1978. "Some empirical evidence on commodity arbitrage and the law of one price," Journal of International Economics, Elsevier, vol. 8(2), pages 341-351, May.
  16. Parsley, David C & Wei, Shang-Jin, 1996. "Convergence to the Law of One Price without Trade Barriers or Currency Fluctuations," The Quarterly Journal of Economics, MIT Press, vol. 111(4), pages 1211-36, November.
  17. Mario J. Crucini & Chris I. Telmer & Marios Zachariadis, 2000. "Dispersion in Real Exchange Rates," Vanderbilt University Department of Economics Working Papers 0013, Vanderbilt University Department of Economics.
  18. Marianne Baxter & Robert G. King, 1995. "Measuring Business Cycles Approximate Band-Pass Filters for Economic Time Series," NBER Working Papers 5022, National Bureau of Economic Research, Inc.
  19. Torsten Persson, 2001. "Currency unions and trade: how large is the treatment effect?," Economic Policy, CEPR & CES & MSH, vol. 16(33), pages 433-462, October.
  20. David H. Romer & Jeffrey A. Frankel, 1999. "Does Trade Cause Growth?," American Economic Review, American Economic Association, vol. 89(3), pages 379-399, June.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Paul R. Bergin & Reuven Glick & Jyh-Lin Wu, 2009. "The Micro-Macro Disconnect of Purchasing Power Parity," NBER Working Papers 15624, National Bureau of Economic Research, Inc.
  2. Bris, Arturo & Koskinen, Yrjö & Nilsson, Mattias, 2003. "The Euro and Corporate Valuations," Working Paper Series in Economics and Finance 525, Stockholm School of Economics, revised 06 Dec 2003.
  3. Bergin, Paul R. & Glick, Reuven, 2007. "Global price dispersion: Are prices converging or diverging?," Journal of International Money and Finance, Elsevier, vol. 26(5), pages 703-729, September.
  4. Michael B. Devereux & Charles Engel, 2006. "Expenditure Switching vs. Real Exchange Rate Stabilization: Competing Objectives for Exchange Rate Policy," NBER Working Papers 12215, National Bureau of Economic Research, Inc.
  5. 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.
  6. Thomas Y. Mathä, 2008. "Regional mc parity: do common pricing points reduce deviations from the law of one price?," BCL working papers 34, Central Bank of Luxembourg.
  7. Yuriy Gorodnichenko & Linda Tesar, 2005. "A Re-Examination of the Border Effect," NBER Working Papers 11706, National Bureau of Economic Research, Inc.
  8. James E. Anderson & Eric van Wincoop, 2004. "Trade Costs," NBER Working Papers 10480, National Bureau of Economic Research, Inc.
  9. Lawrence Edwards & Neil Rankin, 2012. "Is Africa Integrating? Evidence from Product Markets," Working Papers 292, Economic Research Southern Africa.
  10. Rogers, John H., 2007. "Monetary union, price level convergence, and inflation: How close is Europe to the USA?," Journal of Monetary Economics, Elsevier, vol. 54(3), pages 785-796, April.
  11. John H. Rogers, 2002. "Monetary union, price level convergence, and inflation: how close is Europe to the United States?," International Finance Discussion Papers 740, Board of Governors of the Federal Reserve System (U.S.).

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:wpa:wuwpif:0211004. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (EconWPA).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.