TY  - JOUR
AU  - Crucini,Mario J.
AU  - Shintani,Mototsugu
AU  - Tsuruga,Takayuki
TI  - Noisy Information, Distance and Law of One Price Dynamics Across US Cities
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 17815
PY  - 2012
Y2  - February 2012
DO  - 10.3386/w17815
UR  - http://www.nber.org/papers/w17815
L1  - http://www.nber.org/papers/w17815.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  - 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.
ER  -