NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

A Re-Examination of the Border Effect

Yuriy Gorodnichenko, Linda Tesar

NBER Working Paper No. 11706
Issued in October 2005
NBER Program(s):International Finance and Macroeconomics

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.

download in pdf format
   (365 K)

email paper

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w11706

Users who downloaded this paper also downloaded* these:
Gorodnichenko, Martinez-Vazquez, and Sabirianova Peter w13719 Myth and Reality of Flat Tax Reform: Micro Estimates of Tax Evasion Response and Welfare Effects in Russia
Coibion and Gorodnichenko w14586 What Can Survey Forecasts Tell Us About Informational Rigidities?
Gorodnichenko and Ng w15187 Estimation of DSGE Models When the Data are Persistent
Gorodnichenko, Mendoza, and Tesar w14874 The Finnish Great Depression: From Russia with Love
parsley and Wei w7836 Explaining the Border Effect: The Role of Exchange Rate Variability, Shipping Costs, and Geography
 
Publications
Activities
Meetings
NBER Videos
Themes
Data
People
About

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us