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Award Abstract #1030164

International Cities as the Economic Unit of Account: Theory and Measurement

NSF Org: SES
Divn Of Social and Economic Sciences
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Initial Amendment Date: September 18, 2010
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Latest Amendment Date: September 18, 2010
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Award Number: 1030164
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Award Instrument: Standard Grant
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Program Manager: Georgia Kosmopoulou
SES Divn Of Social and Economic Sciences
SBE Direct For Social, Behav & Economic Scie
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Start Date: September 15, 2010
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End Date: August 31, 2015 (Estimated)
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Awarded Amount to Date: $513,111.00
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Investigator(s): Mario Crucini mario.j.crucini@vanderbilt.edu (Principal Investigator)
Mototsugu Shintani (Co-Principal Investigator)
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Sponsor: Vanderbilt University
Sponsored Programs Administratio
Nashville, TN 37235-0002 (615)322-2631
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NSF Program(s): ECONOMICS
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Program Reference Code(s): 9150
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Program Element Code(s): 1320

ABSTRACT

The objective of the proposed research is to facilitate the evolution of macroeconomics from reliance on the National Income and Product Accounts (NIPA) toward an internationally integrated system of City Income and Product Accounts (CIPA). Much is gained by this transition in terms of the scope of economic research and policy analysis while little is lost. That little is lost is evident in the fact that world urbanization increased from 13% in 1900 to 49% in 2005 and is predicted to rise to 60% by 2030 (2006 UN World Urbanization Prospects report). What is gained is substantial based on preliminary results emerging from a number of sub-fields of economics. International economists using city-level price surveys, including work by the co-PIs and collaborators, find that many facts arising from studies of national price indices fail to emerge when city level data is employed. Price adjustment is much faster than what the national data show. Goods that are less traded have larger and more persistent deviations than goods that are more traded. Market segmentation arising from national borders is less severe when absolute LOP deviations are the metric than when time series volatility of aggregated CPI indices are the metric. Three core themes surface in the context of these facts. First, the service sector looms large, both in the distribution of traded goods to final consumers in retail markets and in local services production (education, medicine, emergency services, utilities and transportation infrastructure). Second, markups of price over marginal cost play a central role in accounting for geographic price dispersion. Third, two thirds of international trade has a single multinational firm at one end of the transaction. While this suggests levels of industry concentration conducive to geographic price discrimination, there is still much to learn about the relationship between the geography of markups and the geographic concentration of product-level production.

Intellectual Merit

The intellectual merit of the research is to provide data infrastructure to support Dynamic Stochastic General Equilibrium (DSGE) modeling at the microeconomic level. This allows integrated study of heterogenous economic responses to macroeconomic shocks as well as the spatial scale of microeconomic spillovers. LOP is a compelling reason to study goods markets and cities in a general equilibrium framework. The challenge is to a build model that incorporates LOP deviations in a realistic fashion. Some markets are geographically segmented (medical services, public education), others are globally integrated (agricultural, manufactured goods). The equilibrium of a city depends on the balance of segmentation across the goods, labor and capital markets.

Broader Impact

The broader impact is a novel way of thinking about spatial economic interaction. Shocks and policies need not be defined on the basis of arbitrary political divisions. Cities are microcosms of the world economy that offer insights into the social sciences. Since services are disproportionately publicly provided, cities provide laboratories to study political economy, including issues that span national boundaries. Linking the data and models developed here with Google Earth, students and teachers will be able to explore economic, geographic, cultural and political dimensions of cities in a more integrated and rigorous manner.


PUBLICATIONS PRODUCED AS A RESULT OF THIS RESEARCH

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Crucini, MJ; Shintani, M; Tsuruga, T. "Accounting for persistence and volatility of good-level real exchange rates: The role of sticky information," JOURNAL OF INTERNATIONAL ECONOMICS, v.81, 2010, p. 48.   

Crucini, MJ; Shintani, M; Tsuruga, T. "The Law of One Price without the Border: The Role of Distance versus Sticky Prices," ECONOMIC JOURNAL, v.120, 2010, p. 462.   

Crucini, Mario J., Ayhan Kose, and Christopher Otrok. "What Are the Driving Forces of International Business Cycles?," Review of Economic Dynamics, v.14, 2011, p. 156.

Yilmazkuday, Hakan. "Agglomeration and Trade: State-Level Evidence from U.S. Industries," Journal of Regional Science, v.51, 2011, p. 139.

Yilmazkuday, Hakan and Ege Yazgan. "Price-Level Convergence: New Evidence from U.S. Cities," Economic Letters, v.110, 2011, p. 76.

Berka, M; Crucini, MJ; Wang, CW. "International risk sharing and commodity prices," CANADIAN JOURNAL OF ECONOMICS-REVUE CANADIENNE D ECONOMIQUE, v.45, 2012, p. 417.   

Yilmazkuday, H. "Business cycles through international shocks: A structural investigation," ECONOMICS LETTERS, v.115, 2012, p. 329.   

Yilmazkuday, H. "Understanding interstate trade patterns," JOURNAL OF INTERNATIONAL ECONOMICS, v.86, 2012, p. 158.   

Crucini, Mario J., Mototsugu Shintani and Takayuki Tsuruga. "Do Sticky Prices Increase Real Exchange Rate Volatility at the Sector Level?," European Economic Review, v.62, 2013, p. 58.

Shintani, Mototsugu. "The Inf-t Test for a Unit Root against Asymmetric Exponential Smooth Transition Autoregressive Models," Japanese Economic Review, v.64, 2013, p. 512.


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BOOKS/ONE TIME PROCEEDING

Berka, Martin and Mario J. Crucini. "The Consumption Terms of Trade and Commodity Prices", 09/15/2010-08/31/2011, , Takatoshi Ito and Andrew K. Rose"Commodity Prices and Markets, East Asia Seminar on Economics, Volume 20",  2011, "Chicago: University of Chicago Press".

Berka, Martin and Mario J. Crucini. "The Consumption Terms of Trade and Commodity Prices", 09/01/2011-08/31/2012, , Takatoshi Ito and Andrew K. Rose"Commodity Prices and Markets, East Asia Seminar on Economics, Volume 20",  2011, "Chicago: University of Chicago Press".

NBER. "Comment on: Nontraded Goods Prices, Terms of Trade and International Risk-Sharing: An Empirical Investigation, by Mario J. Crucini", 09/01/2011-08/31/2012, , Christopher Pissarides and Jeffrey Frankel"International Seminar on Macroeconomics",  2011, "University of Chicago Press".

Mototsugu Shintani, Akiko Terada-Hagiwara and Tomoyoshi Yabu. "Exchange Rate Pass-Through and Inflation: A Nonlinear Time Series Analysis", 09/01/2011-08/31/2012, "Journal of International Money and Finance", "forthcoming".

 

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