EconPapers    
Economics at your fingertips  
 

Barriers to price convergence

Marina Glushenkova, Andros Kourtellos and Marios Zachariadis ()

Journal of Applied Econometrics, 2018, vol. 33, issue 7, 1081-1097

Abstract: This paper uncovers novel empirical patterns in the cross‐country price mechanism using a nonlinear factor model and threshold regression analysis based on individual goods retail price data for a large panel of countries. To our knowledge, this is the first paper to find strong evidence for club convergence of retail prices. These clubs emerge due to the interaction of traded and nontraded factors. For example, countries physically closer to potential trade partners converge faster than countries in the high distance regime as long as they have low initial labor productivity or low initial income. Moreover, we find an asymmetry in the extent that arbitrage opportunities related to international trade are exploited, with low initial price regime countries exhibiting faster convergence from below than high initial price regime countries exhibit from above, consistent with less resistance to exporting than to importing due to political economy considerations. We interpret our findings as evidence of a local law of one price due to barriers to price convergence influencing the duration of the effect of price shocks.

Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1) Track citations by RSS feed

Downloads: (external link)
https://doi.org/10.1002/jae.2644

Related works:
Working Paper: Barriers to price convergence (2016) Downloads
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:wly:japmet:v:33:y:2018:i:7:p:1081-1097

Ordering information: This journal article can be ordered from
http://www3.intersci ... e.jsp?issn=0883-7252

Access Statistics for this article

Journal of Applied Econometrics is currently edited by M. Hashem Pesaran

More articles in Journal of Applied Econometrics from John Wiley & Sons, Ltd.
Bibliographic data for series maintained by Wiley Content Delivery ().

 
Page updated 2022-07-22
Handle: RePEc:wly:japmet:v:33:y:2018:i:7:p:1081-1097