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A Model of International Cities: Implications for Real Exchange Rates

  • Hakan Yilmazkuday

    (Vanderbilt)

  • Mario Crucini

    (Vanderbilt)

We develop a model of international cities with each city inhabited by two representative agents, one specializing in manufacturing,ther other in distribution. Using a panel of micro=prices at the city level, we decompose the long-run cross-sectional variance of LOP deviations into the fraction due to distribution costs, trade costs anda residual. For the median good, we find trade costs account for 50 percent of the variance of real exchange rates.

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Paper provided by Society for Economic Dynamics in its series 2009 Meeting Papers with number 1271.

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Date of creation: 2009
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Handle: RePEc:red:sed009:1271
Contact details of provider: Postal: Society for Economic Dynamics Christian Zimmermann Economic Research Federal Reserve Bank of St. Louis PO Box 442 St. Louis MO 63166-0442 USA
Fax: 1-314-444-8731
Web page: http://www.EconomicDynamics.org/society.htm
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  1. 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.
  2. Naknoi, Kanda, 2008. "Real exchange rate fluctuations, endogenous tradability and exchange rate regimes," Journal of Monetary Economics, Elsevier, vol. 55(3), pages 645-663, April.
  3. Burstein, Ariel Tomas & Neves, Joao C & Rebelo, Sérgio, 2001. "Distribution Costs and Real Exchange Rate Dynamics During Exchange-Rate-Based Stabilization," CEPR Discussion Papers 2944, C.E.P.R. Discussion Papers.
  4. Andrew Atkeson & Ariel Burstein, 2007. "Pricing-to-Market in a Ricardian Model of International Trade," NBER Working Papers 12861, National Bureau of Economic Research, Inc.
  5. Mario Crucini & Chris Telmer & Marios Zachariadis, . "Understanding European Real Exchange Rates," GSIA Working Papers 227, Carnegie Mellon University, Tepper School of Business.
  6. 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.
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