Gopinath, Gita, Pierre-Olivier Gourinchas, Chang-Tai Hsieh, and Nicholas Li. 2011. “International Prices, Costs and Mark-up differences.” American Economic Review 101 (6): 2450–86.
Abstract:Relative cross-border retail prices, in a common currency, comove closely with the nominal exchange rate. Using product-level prices and wholesale costs from a grocery chain operating in the United States and Canada, we decompose this variation into relative costs and markup components. The high correlation of nominal and real exchange rates is driven mainly by changes in relative costs. National borders segment markets. Retail prices respond to changes in costs in neighboring stores within the same country but not across the border. Prices have a median discontinuous change of 24 percent at the border and 0 percent at state boundaries. (JEL F31, L11, L81)
Previously circulated under the title "Estimating the Border Effect: Some New Evidence".
Last updated on 01/16/2014