TY  - JOUR
AU  - Crucini,Mario J.
AU  - Shintani,Mototsugu
AU  - Tsuruga,Takayuki
TI  - Accounting for Persistence and Volatility of Good-Level Real Exchange Rates: The Role of Sticky Information
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 14381
PY  - 2008
Y2  - October 2008
UR  - http://www.nber.org/papers/w14381
L1  - http://www.nber.org/papers/w14381.pdf
N1  - Author contact info:
Mario J. Crucini
Department of Economics
Vanderbilt University
Box 1819 Station B
Nashville, TN 37235-1819
Tel: 615/322-7357
Fax: 615/343-8459
E-Mail: mario.j.crucini@vanderbilt.edu

Mototsugu Shintani
Department of Economics
Vanderbilt University
Box 1819 Station B
Nashville, TN 37235-1819
E-Mail: mototsugu.shintani@vanderbilt.edu

Takayuki Tsuruga
Graduate School of Economics, Kyoto University
Yoshida Honmachi Sakyo-ku, Kyoto 606-8501
JAPAN
E-Mail: tsuruga@econ.kyoto-u.ac.jp
AB  - Volatile and persistent real exchange rates are observed not only in aggregate series but also in the individual good level data. Kehoe and Midrigan (2007) recently showed that, under a standard assumption on nominal price stickiness, empirical frequencies of micro price adjustment cannot replicate the time-series properties of the law-of-one-price deviations. We extend their sticky price model by combining good specific price adjustment with information stickiness in the sense of Mankiw and Reis (2002). Under a reasonable assumption on the money growth process, we show that the model fully explains both persistence and volatility of the good-level real exchange rates. Furthermore, our framework allows for multiple cities within a country. Using a panel of U.S.-Canadian city pairs, we estimate a dynamic price adjustment process for each 165 individual goods. The empirical result suggests that the dispersion of average time of information update across goods is comparable to that of average time of price adjustment.
ER  -