Noisy Information, Distance and Law of One Price Dynamics Across US Cities

Mario Crucini (), Mototsugu Shintani and Takayuki Tsuruga

No 17815, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Using micro price data across US cities, we provide evidence that both the volatility and persistence of deviations from the law of one price (LOP) are positively correlated with the distance between cities. A standard, two-city, equilibrium model with time-varying technology under homogeneous information can predict the relationship between the volatility and distance but not between the persistence and distance. To account for the latter fact, we augment the standard model with noisy signals about the state of nominal aggregate demand that are asymmetric across cities. We further establish that the interaction of imperfect information and sticky prices improves the fit of the model.

JEL-codes: D40 E31 F31 (search for similar items in EconPapers)
Date: 2012-02
New Economics Papers: this item is included in nep-geo, nep-opm and nep-ure
Note: IFM
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Citations: View citations in EconPapers (6)

Published as Crucini, Mario J. & Shintani, Mototsugu & Tsuruga, Takayuki, 2015. "Noisy information, distance and law of one price dynamics across US cities," Journal of Monetary Economics, Elsevier, vol. 74(C), pages 52-66.

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Related works:
Journal Article: Noisy information, distance and law of one price dynamics across US cities (2015)
Working Paper: Noisy information, distance and law of one price dynamics across US cities (2014)
Working Paper: Noisy information, distance and law of one price dynamics across US cities (2014)
Working Paper: Noisy Information, Distance and Law of One Price Dynamics Across US Cities (2012)
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