Typography

Thanks to a floating exchange rate and one of the longest undefended frontiers in the world, the U.S.-Canada border is the thoroughfare for what may be one of the world's most popular ongoing consumer arbitrages. Canada and the U.S. interlist all sorts of goods, services and financial assets. We both sell McDonald's hamburgers, we both offer tickets to NHL games, and we both list Valeant Pharmaceutical shares. The relative price of Valeant shares, which trade in New York and Toronto, will rapidly adjust to any change in the exchange rate. If not, then upon an appreciation of the U.S. dollar an investor will be able sell Valeant short in New York at an artificially high price, buy Canadian dollars with the proceeds, and acquire shares in Toronto on the cheap, using those shares to cover the short position in New York at a profit. Exploitation of this opportunity will realign Valeant's New York and Toronto share price until the window closes, thus cannibalizing the potential ...

Sticky prices illustrated, from Eichenbaum, Jaimovich, and Rebelo ( link ) What makes ride sharing firm Uber interesting is not just its use of new technology to mobilize unused car space, but the method it uses to price its services. Uber's surge pricing algorithm varies cab fares dynamically. To get from A to B, the car that you hired this morning for $10 could end up costing $100 this afternoon. How unlike the traditional taxi fare it is displacing! In their 2004 paper on sticky prices, economists Bils and Klenow found that taxi fares tended to remain at the same level for 19.7 months before being adjusted. Getting from A to B pretty much costs you the same price day-in-day-out for almost two years. In our internet age, are prices getting less sticky?  At first glance no. Alberto Cavallo , who along with Roberto Rigobon created the Billion Prices Index (the bane of all inflationistas ), has analyzed scraped data from the websites of retailers who continue to sell mostly thr...