A Reappraisal of the Border Effect on Relative Price Volatility
|Journal / Publication||International Economic Journal|
|Publication status||Published - Dec 2006|
|Link to Scopus||https://www.scopus.com/record/display.uri?eid=2-s2.0-85070121833&origin=recordpage|
Engel & Rogers (1996) find that crossing the US–Canada border can considerably raise relative price volatility and that exchange rate fluctuations explain about one-third of the volatility increase. Using a decomposition method, this study re-evaluates the border effect. It is shown that cross-country heterogeneity in price volatility can induce a bias in measuring the border effect unless proper adjustment is made to correct it. We further examine the implication of symmetric sampling for the border effect estimation under the decomposition approach. Two conditions governing the strength of the border effect are identified. In particular, the more dissimilar the price shocks are across countries, the greater the border effect will be. Decomposition estimates also suggest that exchange rate fluctuations actually account for a large majority of the border effect.
- Relative price volatility, exchange rate volatility, national border, distance, dissimilar shocks
International Economic Journal, Vol. 20, No. 4, 12.2006, p. 495-513.
Research output: Journal Publications and Reviews (RGC: 21, 22, 62) › 21_Publication in refereed journal
CHEUNG, YIN-WONG & LAI, KONS 2006, 'A Reappraisal of the Border Effect on Relative Price Volatility', International Economic Journal, vol. 20, no. 4, pp. 495-513. https://doi.org/10.1080/10168730601027120
CHEUNG, YIN-WONG., & LAI, KON. S. (2006). A Reappraisal of the Border Effect on Relative Price Volatility. International Economic Journal, 20(4), 495-513. https://doi.org/10.1080/10168730601027120
CHEUNG YIN-WONG, LAI KONS. A Reappraisal of the Border Effect on Relative Price Volatility. International Economic Journal. 2006 Dec;20(4):495-513. https://doi.org/10.1080/10168730601027120