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Equilibrium Price Dispersion and the Border Effect

Author

Listed:
  • Ryan Chahrour

    () (Boston College)

  • Luminita Stevens

    () (University of Maryland)

Abstract

We develop a model of equilibrium price dispersion via retailer search and show that the degree of market segmentation within and across countries cannot be separately identified by good-level price data alone. We augment a set of well-known empirical facts about the failure of the law of one price with data on aggregate intranational and international trade quantities, and calibrate the model to match price and quantity facts simultaneously. The calibrated model matches the data very well and implies that within-country markets are strongly segmented, while international borders contribute virtually no additional market segmentation.

Suggested Citation

  • Ryan Chahrour & Luminita Stevens, 2015. "Equilibrium Price Dispersion and the Border Effect," Boston College Working Papers in Economics 888, Boston College Department of Economics.
  • Handle: RePEc:boc:bocoec:888
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    References listed on IDEAS

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    1. Yuriy Gorodnichenko & Linda L. Tesar, 2009. "Border Effect or Country Effect? Seattle May Not Be So Far from Vancouver After All," American Economic Journal: Macroeconomics, American Economic Association, vol. 1(1), pages 219-241, January.
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    Cited by:

    1. Neil Balchin & Lawrence Edwards & Asha Sundaram, 2015. "A Disaggregated Analysis of Product Price Integration in the Southern African Development Community," Journal of African Economies, Centre for the Study of African Economies (CSAE), vol. 24(3), pages 390-415.

    More about this item

    Keywords

    Law of one price; Border effect; Real exchange rate;

    JEL classification:

    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F30 - International Economics - - International Finance - - - General
    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)

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