Limiting Currency Volatility to Stimulate Goods Market Integration: A Price-Based Approach

David Parsley and Shang-Jin Wei

No 2001/197, IMF Working Papers from International Monetary Fund

Abstract: This paper studies the effect of instrumental and institutional stabilization of exchange rate volatility on the integration of goods markets. Rather than using data on volume of trade, this paper employs a 3-dimensional panel of prices of 95 very disaggregated goods (e.g., light bulbs) in 83 cities around the world during 1990-2000. We find that the impact of an institutional stabilization-currency board or dollarization-promotes market integration far beyond an instrumental stabilization. Among them, long-term currency unions are more effective than more recent currency boards. All have room to improve relative to a U.S. benchmark.

Keywords: WP; price dispersion; goods market integration; price difference; common currency; exchange rate variability; Hard pegs; currency union; dollarization; market integration; price comparison; exchange rate volatility; percentage price deviation; price data; Exchange rates; Conventional peg; Tariffs; Currency boards; Currencies; Europe (search for similar items in EconPapers)
Pages: 32
Date: 2001-12-01
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Citations: View citations in EconPapers (69)

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Working Paper: Limiting Currency Volatility to Stimulate Goods Market Integration: a Price-Based Approach (2001)
Working Paper: Limiting Currency Volatility to Stimulate Goods Market Integration: A Price Based Approach (2001)
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