How wide are European borders? New evidence on the integration effects of monetary unions

  • We use consumer price data for 81 European cities (in Germany, Austria, Switzerland, Italy, Spain and Portugal) to study deviations from the law-of-one-price before and during the European Economic and Monetary Union (EMU) by analysing both aggregate and disaggregate CPI data for 7 categories of goods we find that the distance between cities explains a significant amount of the variation in the prices of similar goods in different locations. We also find that the variation of the relative price is much higher for two cities located in different countries than for two equidistant cities in the same country. Under EMU, the elimination of nominal exchange rate volatility has largely reduced these border effects, but distance and border still matter for intra-European relative price volatility. JEL classification: F40, F41

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Author:Günter W. Beck, Axel A. Weber
Parent Title (German):Center for Financial Studies (Frankfurt am Main): CFS working paper series ; No. 2001,07
Series (Serial Number):CFS working paper series (2001, 07)
Document Type:Working Paper
Year of Completion:2001
Year of first Publication:2001
Publishing Institution:Universitätsbibliothek Johann Christian Senckenberg
Release Date:2005/06/13
Tag:law of one price; panel unit root test; purchasing power parity; real exchange rate; relative price volatility; spatial data; stationarity
GND Keyword:Deutschland; Österreich; Schweiz; Italien; Spanien; Portugal; Verbraucherpreis; Europäische Union; Währungsunion
Issue:Revised Version: April 2003
Version: Januar 2001. Revised April 2003
Institutes:Wissenschaftliche Zentren und koordinierte Programme / Center for Financial Studies (CFS)
Dewey Decimal Classification:3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft
Licence (German):License LogoDeutsches Urheberrecht