NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

A Model of International Cities: Implications for Real Exchange Rates

Mario J. Crucini, Hakan Yilmazkuday

NBER Working Paper No. 14834
Issued in April 2009
NBER Program(s):   IFM

We develop a model of cities each inhabited by two agents, one specializing in manufacturing, the other in distribution. The distribution sector represents the physical transformation of all internationally traded goods from the factory gate to the final consumer. Using a panel of micro-prices at the city level, we decompose the long-run variance of LOP deviations into the fraction due to distribution costs, trade costs and a residual. For the median good, trade costs account for 50 percent of the variance, distribution costs account for 10 percent with 40 percent of the variance unexplained. Since the sample of items in the data are heavily skewed toward traded goods, we also decompose the variance based on the median good on an expenditure-weighted basis. Now the tables turn, with distribution costs accounting for 43 percent, trade costs 36 percent and 21 percent of the variance unexplained.

download in pdf format
   (338 K)

email paper

This paper is available as PDF (338 K) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w14834

Users who downloaded this paper also downloaded these:
Crucini, Shintani, and Tsuruga w14835 The Law of One Price Without the Border: The Role of Distance Versus Sticky Prices
Berka and Devereux w15753 What Determines European Real Exchange Rates?
Crucini, Shintani, and Tsuruga w16081 Do Sticky Prices Increase Real Exchange Rate Volatility at the Sector Level?
Cheung, Chinn, and Fujii w14673 China's Current Account and Exchange Rate
Devereux, Smith, and Yetman w14795 Consumption and Real Exchange Rates in Professional Forecasts
 
Publications
Activities
Meetings
NBER Videos
Data
People
About

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

Contact Us