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

Author/Editor:

David C. Parsley ; Shang-Jin Wei

Publication Date:

December 1, 2001

Electronic Access:

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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.

Series:

Working Paper No. 2001/197

Subject:

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

English

Publication Date:

December 1, 2001

ISBN/ISSN:

9781451860016/1018-5941

Stock No:

WPIEA1972001

Pages:

32

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