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 RCAST University of Tokyo 4-6-1 Komaba, Meguro-ku Tokyo 153-8904 JAPAN Japan Tel: 81354525338 E-Mail: Moto.shintani@gmail.com Takayuki Tsuruga Institute of Social and Economic Research Osaka University 6-1 Mihogaoka Ibaraki 5670047 Japan E-Mail: tsuruga@iser.osaka-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 -