How Wide is the Border?

AMERICAN ECONOMIC REVIEW, Vol 86 No 5, December 1996

Posted: 21 Feb 1997

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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Abstract

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

Engel, Charles M. and Rogers, John H., How Wide is the Border?. AMERICAN ECONOMIC REVIEW, Vol 86 No 5, December 1996. Available at SSRN: https://ssrn.com/abstract=4672

Charles M. Engel (Contact Author)

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

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National Bureau of Economic Research (NBER)

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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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Washington, DC 20551
United States
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202-736-5638 (Fax)

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