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How Wide Is the Border?
Charles Engel and John H. Rogers
The American Economic Review
Vol. 86, No. 5 (Dec., 1996), pp. 1112-1125
Published by: American Economic Association
Stable URL: http://www.jstor.org/stable/2118281
Page Count: 14
You can always find the topics here!Topics: Prices, Cities, Relative prices, Standard deviation, Coefficients, City pairs, Market prices, Exchange rates, Consumer prices, Nominal prices
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We use CPI data for U.S. and Canadian cities for 14 categories of consumer prices to examine the nature of the deviations from the law of one price. The distance between cities explains a significant amount of the variation in the prices of similar goods in different cities. But the variation of the price is much higher for two cities located in different countries than for two equidistant cities in the same country. We explore some of the reasons for this finding. Sticky nominal prices appear to be one explanation but probably do not explain most of the border effect.
The American Economic Review © 1996 American Economic Association