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Working Paper
The role of two frictions in geographic price dispersion: when market friction meets nominal rigidity
This paper empirically investigates and theoretically derives the implications of two frictions, market friction and nominal rigidity, on the dynamic properties of intra-national relative prices, with an emphasis on the interaction of the two frictions. By analyzing a panel of retail prices of 45 products for 48 cities in the U.S., we make two major arguments. First, the effect of each type of friction on the dynamics of intercity price gaps is quite different. While market frictions arising from physical distance and transportation costs contribute significantly to volatile and persistent ...
Working Paper
Shipping Prices and Import Price Inflation
During the pandemic there have been unprecedented increases in the cost of shipping goods accompanied by delays and backlogs at the ports. At the same time, import price inflation has reached levels unseen since the early 1980s. This has led many to speculate that the two trends are linked. In this article, we use new data on the price of shipping goods between countries to analyze the extent to which increases in the price of shipping can account for the increase in U.S. import price inflation. We find that the pass-through of shipping costs is small. Nevertheless, because the rise in ...
Working Paper
Currency Areas, Labor Markets, and Regional Cyclical Sensitivity
In his papers during the lead up to the birth of the European Monetary Union, Obstfeld considered whether the countries forming the EMU were sufficiently similar to survive a single monetary policy--and more importantly, whether they had the capacity to adjust to asymmetric shocks given a single monetary and exchange rate policy. The convention at the time was to take the United States as the baseline for a smoothly functioning currency union. We document the evolution of the literature on regional labor market adjustment within the United States, expanding on stylized facts illustrating how ...
Working Paper
Shipping Prices and Import Price Inflation
During the pandemic there have been unprecedented increases in the cost of shipping goods accompanied by delays and backlogs at the ports. At the same time, import price inflation has reached levels unseen since the early 1980s. This has led many to speculate that the two trends are linked. In this article, we use new data on the price of shipping goods between countries to analyze the extent to which increases in the price of shipping can account for the increase in U.S. import price inflation. We find that the pass-through of shipping costs is small. Nevertheless, because the rise in ...
Working Paper
The Local Impact of Containerization
We investigate how containerization impacts local economic activity. Containerization is premised on a simple insight: packaging goods for waterborne trade into a standardized container makes them dramatically cheaper to move. We use a novel cost-shifter instrument -- port depth pre-containerization -- to contend with the non-random adoption of containerization by ports. Container ships sit much deeper in the water than their predecessors, making initially deep ports cheaper to containerize. Consistent with New Economic Geography models, we find that counties near container ports grow an ...
Working Paper
How Much Will the Belt and Road Initiative Reduce Trade Costs?
This paper studies the impact of transport infrastructure projects of the Belt and Road Initiative on shipment times and trade costs. Based on a new data on completed and planned Belt and Road transport projects, Geographic Information System analysis is used to estimate shipment times before and after the Belt and Road Initiative. Two sets of data are computed to address different research questions: a global database based on an analysis of 1,000 cities in 191 countries and 47 sectors and a regional database that focuses on more granular information (1,818 cities) for Belt and Road ...
Working Paper
The role of direct flights in trade costs
The role of direct flights in trade costs is investigated by introducing and using a micro price data set on 49 goods across 433 international cities covering 114 countries. It is shown that having at least one direct flight reduces trade costs by about 1,400 miles in distance equivalent terms, while an international border increases trade costs by about 14,907 miles; hence, the positive effects of having at least one direct flight between any two cities can compensate for about 10% of the negative effects of an average international border. Trade costs also decrease with the number of direct ...
Working Paper
Exchange rate pass-through, domestic competition and inflation -- evidence from the 2005/08 revaluation of the Renminbi
How important is the effect of exchange rate fluctuations on the competitive environment faced by domestic firms and the prices they charge? To answer this question, this paper examines the 17 percent appreciation of the yuan against the U.S. dollar from 2005 to 2008. In a monthly panel covering 110 sectors, a 1 percent appreciation of the Yuan increases U.S. import prices by roughly 0.8 percent. It is then shown that import prices, in turn, pass through into producer prices at an average rate of roughly 0.7, implying that a 1 percent Yuan appreciation increases the average U.S. producer ...
Report
Foreign Shocks as Granular Fluctuations
This paper uses a data set covering the universe of French firm-level sales, imports, and exports over the period 1993-2007 and a quantitative multi-country model to study the international transmission of business cycle shocks at both the micro and the macro levels. The largest firms are both important enough to generate aggregate fluctuations (Gabaix 2011), and most likely to be internationally connected. This implies that foreign shocks are transmitted to the domestic economy primarily through the largest firms. We first document a novel stylized fact: larger French firms are significantly ...
Working Paper
Investment Responses to Trade Liberalization : Evidence from U.S. Industries and Establishments
This paper examines the effect of a change in U.S. trade policy on the domestic investment of U.S. manufacturers. Using a difference-in-differences identification strategy, we find that industries more exposed to reductions in import tariff uncertainty exhibit relative declines in investment after the change in trade policy. Within industries, we find that this relationship is concentrated among establishments with low initial levels of labor productivity, capital intensity and skill intensity. For plants with high initial levels of skill intensity, we find that increased exposure is ...