TY  - JOUR
AU  - Parsley,David C.
AU  - Wei,Shang-Jin
TI  - Limiting Currency Volatility to Stimulate Goods Market Integration: A Price Based Approach
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 8468
PY  - 2001
Y2  - September 2001
UR  - http://www.nber.org/papers/w8468
L1  - http://www.nber.org/papers/w8468.pdf
N1  - Author contact info:
david parsley
Owen Graduate School
Vanderbilt University
Nashville, TN  37203
Tel: 615.322.0649
Fax: 615.343.7177
E-Mail: david.parsley@vanderbilt.edu

Shang-Jin Wei
Graduate School of Business
Columbia University
Uris Hall 619
3022 Broadway
New York, NY 10027-6902
Tel: 212/854-9139
E-Mail: shangjin.wei@columbia.edu
AB  - This paper empirically studies the effect of instrumental and institutional stabilization of the exchange rate on the integration of goods markets.  An instrumental stabilization of the exchange rate is accomplished through intervention in the foreign exchange market, or by monetary policies.  An institutional stabilization, is an adoption a currency board or a common currency.  In contrast to the literature that employs data on the volume of trade, an important novelty of this paper is the use of a 3-dimensional panel of prices of 95 very disaggregated goods (e.g., light bulbs) in 83 cities from around the world from 1990 to 2000.  We find that goods market integration is increasing over time and is inversely related to distance, exchange rate variability, and tariff barriers.  In addition, the impact of an institutional stabilization of the exchange rate provides a stimulus to goods market integration that goes far beyond an instrumental stabilization.  Among the institutional arrangements, long-term currency unions demonstrate greater integration than more recent currency boards.  All of them can improve their integration further relative to a U.S. benchmark.
ER  -