A Model of International Cities: Implications for Real Exchange Rates

Mario Crucini () and Hakan Yilmazkuday

No 14834, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We develop a model of cities each inhabited by two agents, one specializing in manufacturing, the other in distribution. The distribution sector represents the physical transformation of all internationally traded goods from the factory gate to the final consumer. Using a panel of micro-prices at the city level, we decompose the long-run variance of LOP deviations into the fraction due to distribution costs, trade costs and a residual. For the median good, trade costs account for 50 percent of the variance, distribution costs account for 10 percent with 40 percent of the variance unexplained. Since the sample of items in the data are heavily skewed toward traded goods, we also decompose the variance based on the median good on an expenditure-weighted basis. Now the tables turn, with distribution costs accounting for 43 percent, trade costs 36 percent and 21 percent of the variance unexplained.

JEL-codes: F0 F15 (search for similar items in EconPapers)
Date: 2009-04
New Economics Papers: this item is included in nep-ifn and nep-opm
Note: IFM
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (22)

Downloads: (external link)
http://www.nber.org/papers/w14834.pdf (application/pdf)

Related works:
Working Paper: A model of international cities: implications for real exchange rates (2009)
Working Paper: A Model of International Cities: Implications for Real Exchange Rates (2009)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:14834

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w14834

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().