How Wide is the Border?

43 Pages Posted: 6 Sep 2000 Last revised: 17 Sep 2010

See all articles by Charles M. Engel

Charles M. Engel

University of Wisconsin - Madison - Department of Economics; National Bureau of Economic Research (NBER); University of Washington - Department of Economics

John H. Rogers

Board of Governors of the Federal Reserve System - Trade and Financial Studies Section

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Date Written: August 1994

Abstract

Failures of the law of one price explain much of the variation in real C.P.I. exchange rates. We use C.P.I. data for U.S. cities 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. By our most conservative measure, crossing the border adds as much to the volatility of prices as adding 2500 miles between cities.

Suggested Citation

Engel, Charles M. and Rogers, John H., How Wide is the Border? (August 1994). NBER Working Paper No. w4829. Available at SSRN: https://ssrn.com/abstract=226531

Charles M. Engel (Contact Author)

University of Wisconsin - Madison - Department of Economics ( email )

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University of Washington - Department of Economics ( email )

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John H. Rogers

Board of Governors of the Federal Reserve System - Trade and Financial Studies Section ( email )

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United States
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202-736-5638 (Fax)

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