Common Currencies and Market Integration Across Cities: How Strong is the Link?
With two balanced panels of up to 124 goods and services prices and up to 116 international cities, this chapter studies the determinants of price dispersion across pairs of cities in 2001. It finds that price dispersion increases with distance, nominal bilateral exchange-rate volatility, and differences in economic development. Price dispersion is significantly lower across cities located in the euro area. These findings are obtained after controlling for whether cities are located in the same country and regional trading and common language areas or have other historical links.
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