Federal Reserve Bank of Minneapolis
Equilibrium Price Dispersion and the Border Effect
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.
Cite this item
Luminita Stevens & Ryan Chahrour, Equilibrium Price Dispersion and the Border Effect, Federal Reserve Bank of Minneapolis, Staff Report 522, 18 Dec 2015.
- E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
- F30 - International Economics - - International Finance - - - General
- F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
Keywords: Law of one price; Border effect; Real exchange rate
This item with handle RePEc:fip:fedmsr:522
is also listed on EconPapers
For corrections, contact Jannelle Ruswick ()