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AER - October 2011

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American Economic Review

Vol. 101, No. 6, October 2011

International Prices, Costs, and Markup Differences Gita Gopinath, Pierre-Olivier Gourinchas, Chang-Tai Hsieh and Nicholas Li
Article Citation
Gopinath, Gita, Pierre-Olivier Gourinchas, Chang-Tai Hsieh, and Nicholas Li. 2011. "International Prices, Costs, and Markup Differences." American Economic Review, 101(6): 2450–86.
DOI:10.1257/aer.101.6.2450
Abstract
Relative cross-border retail prices, in a common currency, comove closely with the nominal exchange rate. Using product-level prices and wholesale costs from a grocery chain operating in the United States and Canada, we decompose this variation into relative costs and markup components. The high correlation of nominal and real exchange rates is driven mainly by changes in relative costs. National borders segment markets. Retail prices respond to changes in costs in neighboring stores within the same country but not across the border. Prices have a median discontinuous change of 24 percent at the border and 0 percent at state boundaries. (JEL F31, L11, L81)

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Authors

Gopinath, Gita (Harvard U)
Gourinchas, Pierre-Olivier (U CA, Berkeley)
Hsieh, Chang-Tai (U Chicago)
Li, Nicholas (U CA, Berkeley)

JEL Classifications

F31: Foreign Exchange
L11: Production, Pricing, and Market Structure; Size Distribution of Firms
L81: Retail and Wholesale Trade; e-Commerce