A Re-Examination of the Border Effect

Yuriy Gorodnichenko and Linda Tesar ()

No 11706, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper reexamines the evidence on the border effect, the finding that the border drives a wedge between domestic and foreign prices. We argue that the border effect can be inflated by the volatility and persistence of the nominal exchange rate and by the cross-country heterogeneity in the distribution of within-country price differentials. We develop a simple framework to separate the border effect from these confounding factors. Using price data from Engel and Rogers (1996) and Parsley and Wei (2001), we show that after controlling for the confounding factors the border effect between the U.S. and Canada and the U.S. and Japan is negligible.

JEL-codes: F3 F40 F41 (search for similar items in EconPapers)
Date: 2005-10
New Economics Papers: this item is included in nep-ifn and nep-int
Note: IFM
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Citations: View citations in EconPapers (4)

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Working Paper: A Re-Examination of the Border Effect (2005)
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