Regional Patterns in the Law of One Price: The Roles of Geography vs. Currencies / Charles Engel, John H. Rogers.

Format:

Book

Author/Creator:

Engel, Charles.

Contributor:

National Bureau of Economic Research.

Rogers, John H.

Series:

Working Paper Series (National Bureau of Economic Research) no. w5395.

NBER working paper series no. w5395

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

Regional Patterns in the Law of One Price

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1995.

Summary:

We find evidence that the law of one price (LOOP) holds more nearly for country pairs that are within geographic regions than for country pairs that are not. These findings are established using disaggregated consumer price data from 23 countries (including data from eight North American cities). We find that failures of LOOP are closely related to nominal exchange rate variability, suggesting a link to sticky nominal prices. We also find that distance can explain failures of LOOP, suggesting the failures arise from imperfect market integration. However, these two sources do not explain all of the failure of LOOP. We speculate that integrated marketing and distribution systems within regions cause LOOP to hold more nearly intraregionally. We present a formal model of marketing and distribution to illustrate this hypothesis.

Notes:

Print version record

December 1995.