The Geography of Consumer Prices

Attila Rátfai, Ádám Reiff

    Research output: Working paper/PreprintWorking paper

    Abstract (may include machine translation)

    We argue that the underlying width of the border in international price determination is a trivial fraction of the corresponding Engel and Rogers
    (1996) reduced form estimate. We develop a two-country, multi-region, dynamic, stochastic equilibrium model of monopolistic competition with
    costly price adjustment and cross-location shopping. The optimal price is proportional to a weighted average of market prices, with weights negatively related to shopping costs. We calibrate structural distance and border parameters to a unique panel of store-level prices, and conclude that price adjustment costs directly account for about a quarter of the reduced form border width.
    Original languageEnglish
    Place of PublicationZürich
    PublisherSwiss National Bank
    StatePublished - 2013

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