Explaining the border effect : the role of exchange rate variability , shipping costs , and geography

@inproceedings{Parsley2001ExplainingTB,
  title={Explaining the border effect : the role of exchange rate variability , shipping costs , and geography},
  author={David C. Parsley and Shang-jin Wei},
  year={2001}
}
This paper exploits a three-dimensional panel data set of prices on 27 traded goods, over 88 quarters, across 96 cities in the US and Japan. We show that a simple average of good-level real exchange rates tracks the nominal exchange rate well, suggesting strong evidence of sticky prices. Focusing on dispersion in prices between city-pairs, we find that crossing the US–Japan ‘Border’ is equivalent to adding as much as 43 000 trillion miles to the cross-country volatility of relative prices. We… CONTINUE READING
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