CONSUMER SEARCH,PRICE DISPERSION,AND INTERNATIONAL RELATIVE PRICE FLUCTUATIONS* |
| |
| Authors: | George Alessandria |
| |
| Institution: | 1. Federal Reserve Bank of Philadelphia, U.S.A.;2. I would like to thank two anonymous referees and the editor Randy Wright for helpful comments. I would also like to thank Andy Atkeson, Dave Backus, Gabrielle Camera, Patrick Kehoe, Ricardo Lagos, Ellen McGrattan, and Richard Rogerson as well as seminar participants at Colorado, Florida State, Houston, Iowa State, Kentucky, NYU, Ohio State, Penn State, Rutgers, Virginia, the Minneapolis and Philadelphia Feds, and the SED in Costa Rica. All remaining errors are my own. This is a substantially revised version of the chapter in my dissertation, “Price Dispersion and International Relative Price Volatility.” The views expressed here are mine and not necessarily those of the Federal Reserve Bank of Philadelphia or the Federal Reserve System. Please address correspondence to: George Alessandria, Research Department, Federal Reserve Bank of Philadelphia, 10 Independence Mall, Philadelphia, PA 19106, U.S.A. Phone: 215‐574‐6402, E‐mail: . |
| |
| Abstract: | This article develops a model of consumer search consistent with the evidence of substantial price dispersion and time spent shopping within countries to study international deviations from the law of one price (LOP) and relative price fluctuations. Search frictions lead firms to price discriminate across markets based on the opportunity cost of search, which depends on the local wage. With productivity and taste shocks estimated from the data, deviations from the LOP are as volatile and persistent as in the data. Fluctuations in relative wages, real exchange rates, and the terms of trade are also consistent with the data. |
| |
| Keywords: | |
|
|
