IDEAS home Printed from https://ideas.repec.org/p/nbr/nberwo/14834.html
   My bibliography  Save this paper

A Model of International Cities: Implications for Real Exchange Rates

Author

Listed:
  • Mario J. Crucini
  • Hakan Yilmazkuday

Abstract

We develop a model of cities each inhabited by two agents, one specializing in manufacturing, the other in distribution. The distribution sector represents the physical transformation of all internationally traded goods from the factory gate to the final consumer. Using a panel of micro-prices at the city level, we decompose the long-run variance of LOP deviations into the fraction due to distribution costs, trade costs and a residual. For the median good, trade costs account for 50 percent of the variance, distribution costs account for 10 percent with 40 percent of the variance unexplained. Since the sample of items in the data are heavily skewed toward traded goods, we also decompose the variance based on the median good on an expenditure-weighted basis. Now the tables turn, with distribution costs accounting for 43 percent, trade costs 36 percent and 21 percent of the variance unexplained.

Suggested Citation

  • Mario J. Crucini & Hakan Yilmazkuday, 2009. "A Model of International Cities: Implications for Real Exchange Rates," NBER Working Papers 14834, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:14834 Note: IFM
    as

    Download full text from publisher

    File URL: http://www.nber.org/papers/w14834.pdf
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. Naknoi, Kanda, 2008. "Real exchange rate fluctuations, endogenous tradability and exchange rate regimes," Journal of Monetary Economics, Elsevier, pages 645-663.
    2. Crockett, Sean & Spear, Stephen & Sunder, Shyam, 2008. "Learning competitive equilibrium," Journal of Mathematical Economics, Elsevier, pages 651-671.
    3. 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.
    4. Andrew Atkeson & Ariel Burstein, 2007. "Pricing-to-Market in a Ricardian Model of International Trade," American Economic Review, American Economic Association, vol. 97(2), pages 362-367, May.
    5. Long, John B, Jr & Plosser, Charles I, 1983. "Real Business Cycles," Journal of Political Economy, University of Chicago Press, vol. 91(1), pages 39-69, February.
    6. Burstein, Ariel T. & Neves, Joao C. & Rebelo, Sergio, 2003. "Distribution costs and real exchange rate dynamics during exchange-rate-based stabilizations," Journal of Monetary Economics, Elsevier, pages 1189-1214.
    7. Alvarez, Fernando & Lucas, Robert Jr., 2007. "General equilibrium analysis of the Eaton-Kortum model of international trade," Journal of Monetary Economics, Elsevier, vol. 54(6), pages 1726-1768, September.
    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


    Cited by:

    1. Crucini, Mario J. & Shintani, Mototsugu & Tsuruga, Takayuki, 2010. "Accounting for persistence and volatility of good-level real exchange rates: The role of sticky information," Journal of International Economics, Elsevier, pages 48-60.
    2. Andrade, Philippe & Zachariadis, Marios, 2016. "Global versus local shocks in micro price dynamics," Journal of International Economics, Elsevier, vol. 98(C), pages 78-92.
    3. Crucini, Mario J. & Shintani, Mototsugu & Tsuruga, Takayuki, 2010. "Accounting for persistence and volatility of good-level real exchange rates: The role of sticky information," Journal of International Economics, Elsevier, pages 48-60.
    4. Giri, Rahul, 2012. "Local costs of distribution, international trade costs and micro evidence on the law of one price," Journal of International Economics, Elsevier, pages 82-100.
    5. Bekkers, Eddy & Simonovska, Ina, 2015. "The Balassa–Samuelson effect and pricing-to-market: The role of strategic complementarity," Economics Letters, Elsevier, vol. 126(C), pages 156-158.
    6. Hakan Yilmazkuday, 2012. "How wide is the border across U.S. states?," Letters in Spatial and Resource Sciences, Springer, pages 25-31.
    7. Crucini, Mario J. & Davis, J. Scott, 2016. "Distribution capital and the short- and long-run import demand elasticity," Journal of International Economics, Elsevier, pages 203-219.
    8. Sposi, Michael, 2015. "Trade barriers and the relative price of tradables," Journal of International Economics, Elsevier, pages 398-411.
    9. Sposi, Michael J., 2013. "Trade barriers and the relative price tradables," Globalization and Monetary Policy Institute Working Paper 139, Federal Reserve Bank of Dallas.
    10. Chaban, Maxym, 2011. "Home bias, distribution services and determinants of real exchange rates," Journal of Macroeconomics, Elsevier, pages 793-806.
    11. Yilmazkuday, Hakan, 2009. "Is the Armington Elasticity Really Constant across Importers?," MPRA Paper 15954, University Library of Munich, Germany.
    12. Patricia Sourdin & Richard Pomfret, 2012. "Trade Facilitation," Books, Edward Elgar Publishing, number 14596, April.
    13. Philippe Andrade & Marios Zachariadis, 2010. "Trends in International Prices," University of Cyprus Working Papers in Economics 02-2010, University of Cyprus Department of Economics.
    14. Crucini, Mario J. & Yilmazkuday, Hakan, 2014. "Understanding long-run price dispersion," Journal of Monetary Economics, Elsevier, vol. 66(C), pages 226-240.

    More about this item

    JEL classification:

    • F0 - International Economics - - General
    • F15 - International Economics - - Trade - - - Economic Integration

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:14834. 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: (). General contact details of provider: http://edirc.repec.org/data/nberrus.html .

    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 CitEc recognized a reference but did not link an item in RePEc 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 RePEc Author Service 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.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.