Limiting Currency Volatility to Stimulate Goods Market Integration: A Price-Based Approach

December 1, 2001

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Format: Chicago

David C. Parsley, and Shang-Jin Wei. Limiting Currency Volatility to Stimulate Goods Market Integration: A Price-Based Approach, (USA: International Monetary Fund, 2001) accessed December 22, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

This paper studies the effect of instrumental and institutional stabilization of exchange rate volatility on the integration of goods markets. Rather than using data on volume of trade, this paper employs a 3-dimensional panel of prices of 95 very disaggregated goods (e.g., light bulbs) in 83 cities around the world during 1990-2000. We find that the impact of an institutional stabilization-currency board or dollarization-promotes market integration far beyond an instrumental stabilization. Among them, long-term currency unions are more effective than more recent currency boards. All have room to improve relative to a U.S. benchmark.

Subject: Conventional peg, Currencies, Currency boards, Exchange rates, Foreign exchange, Money, Tariffs, Taxes

Keywords: Common currency, Conventional peg, Currencies, Currency boards, Currency union, Dollarization, Europe, Exchange rate variability, Exchange rate volatility, Exchange rates, Goods market integration, Hard pegs, Market integration, Percentage price deviation, Price comparison, Price data, Price difference, Price dispersion, Tariffs, WP

Publication Details

Pages:

32
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2001/197
Stock No:

WPIEA1972001
ISBN:

9781451860016
ISSN:

1018-5941

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