Social and Behavioral Sciences Commons^™

Borderplex Panel Evidence On Restaurant Price And Exchange Rate Dynamics, Thomas M. Fullerton Jr., André Varella Mollick

Border Region Modeling Project

This paper examines prices for 32 identical menu items sold by restaurant franchises operating on both sides of the border between El Paso in the U.S. and Ciudad Juárez in Mexico from July 1997 to June 2008. The relationship between real exchange rate (RER) volatility and the degree of price convergence is examined within a panel data context. The city-pair and goods selected provide a unique experiment in which distance, tradability, and industry considerations are set aside and the extent of RER volatility is the only factor to influence price convergence. We find non-monotonic relationships between mean reversion and RER …