How Wide is the Border?
AMERICAN ECONOMIC REVIEW, Vol 86 No 5, December 1996
Posted: 21 Feb 1997
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.
JEL Classification: F40, F41
Suggested Citation: Suggested Citation