A Model of International Cities: Implications for Real Exchange Rates / Mario J. Crucini, Hakan Yilmazkuday.

Format:

Book

Author/Creator:

Crucini, Mario J.

Contributor:

National Bureau of Economic Research.

Yilmazkuday, Hakan.

Series:

Working Paper Series (National Bureau of Economic Research) no. w14834.

NBER working paper series no. w14834

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

A Model of International Cities

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2009.

Summary:

We develop a model of cities each inhabited by two agents, one specializing in manufacturing, the other in distribution. The distribution sector represents the physical transformation of all internationally traded goods from the factory gate to the final consumer. Using a panel of micro-prices at the city level, we decompose the long-run variance of LOP deviations into the fraction due to distribution costs, trade costs and a residual. For the median good, trade costs account for 50 percent of the variance, distribution costs account for 10 percent with 40 percent of the variance unexplained. Since the sample of items in the data are heavily skewed toward traded goods, we also decompose the variance based on the median good on an expenditure-weighted basis. Now the tables turn, with distribution costs accounting for 43 percent, trade costs 36 percent and 21 percent of the variance unexplained.

Notes:

Print version record

April 2009.