TY  - JOUR
AU  - Engel,Charles
AU  - Rogers,John H.
TI  - How Wide is the Border?
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 4829
PY  - 1994
Y2  - August 1994
UR  - http://www.nber.org/papers/w4829
L1  - http://www.nber.org/papers/w4829.pdf
N1  - Author contact info:
Charles Engel
Department of Economics
University of Wisconsin
1180 Observatory Drive
Madison, WI  53706-1393
Tel: 608/262-3697
Fax: 608/262-2033
E-Mail: cengel@ssc.wisc.edu

John Rogers
Federal Reserve Board
International Finance Division
Mail Stop 20
Washington, DC 20551
Tel: 202/452-2873
Fax: 202/452-6424
E-Mail: JOHN.H.ROGERS@FRB.GOV
AB  - Failures of the law of one price explain much of the variation in real C.P.I. exchange rates.  We use C.P.I. data for U.S. cities and Canadian cities for 14 categories of consumer prices to examine the nature of the deviations from the law of one price.  The distance between cities explains a significant amount of the variation in the prices of similar goods in different cities.  But, the variation of the price is much higher for two cities located in different countries than for two equidistant cities in the same country.  By our most conservative measure, crossing the border adds as much to the volatility of prices as adding 2500 miles between cities.
ER  -