Exchange Rate Fluctuations、Heterogeneity Effect and the Estimation the City Border Effect between China and USA
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| Title | Exchange Rate Fluctuations、Heterogeneity Effect and the Estimation the City Border Effect between China and USA
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| Author | Huang Xinfei Shu Yuan and Wei Yunxin |
| Organization | International Business School, Sun Yat-sen University;Lingnan(University)College,SUN YAT-SEN University |
| Email | huangxf3@mail.sysu.edu.cn |
| Key Words | Border Effect; Exchange rate effect; Heterogeneity Effect; The Law of One Price |
| Abstract | Exchange rate fluctuations and country heterogeneity effect would affect the distribution of price differentials between cross-country cities，disturb the border effect estimated。This paper selects 25 cities in China and 24 cities in the United States to match cross-city combinations，and employs the price data covering 8 categories of goods 2000-2008 to construct index data about volatility in price differentials of international city combination。And based on the border effect model this paper estimates the border effect between China and USA with the consideration of exchange rate effects and heterogeneity effect。The result shows that heterogeneity effect can reduce the disturbance to the distribution of price differentials between cross-country city，the modified border effect decreased from 814300 million kilometers to 5642 km；The higher the volatility of nominal exchange rate is，the longer the duration time and half-life are，the greater the volatility of price differences between cross-border cities is，the border effect decreased to 8353 km after controlling for persistence effect，if controlling for heterogeneity effect and exchange rate effects the cross-country border effect declined significantly，just 53 km。This paper also found that the domestic border effect of China is higher than the USA，the degree of domestic market integration of China is less than the USA。 |
| Serial Number | WP88 |
| Time | 2011-07-20 |
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