The Geography of Consumer Prices

Adam Reiff and Attila Ratfai
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Attila Ratfai: Central European University

No 799, 2012 Meeting Papers from Society for Economic Dynamics

Abstract: We argue that the underlying width of the border in international price determination is a trivial fraction of the corresponding Engel and Rogers (1996) reduced form estimate. We develop a two-country, multi-region, dynamic, stochastic equilibrium model of monopolistic competition with costly price adjustment and cross-location shopping. The optimal price is proportional to a weighted average of market prices, with weights negatively related to shopping costs. We calibrate structural distance and border parameters to a unique panel of store-level prices, and conclude that price adjustment costs directly account for about a quarter of the reduced form border width.

Date: 2012
New Economics Papers: this item is included in nep-dge, nep-opm and nep-ure
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Related works:
Working Paper: The Geography of Consumer Prices (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:red:sed012:799

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