Deviations from the Law of One Price in Japan
Abstract
Using 25 years of monthly data on individual Japanese retail prices, we study the behavior of product-specific Law of One Price (LOP) deviations. Individual tradable products, compared with nontradables, are more likely to have different distributions of LOP deviations across cities. Their distributions are also more likely to change over time. Individual LOP deviation series are found to display considerable persistence and there is limited evidence that tradability enhances price convergence. In addition, deviations from the LOP are found to display nonlinear trends, and these trends are not linearly related to a product’s tradability. For individual products, LOP deviations are affected by their own inflation rates and, to a lesser extent, by aggregate inflation, output variations, and monetary variability. Interestingly, the trend behavior remains significant in the presence of these economic variables.Download Info
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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 2275.Length:
Date of creation: 2008
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Handle: RePEc:ces:ceswps:_2275
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Keywords: price dispersion; tradability; asymmetric inflation effects; market integration;Find related papers by JEL classification:
- F31 - International Economics - - International Finance - - - Foreign Exchange
- F34 - International Economics - - International Finance - - - International Lending and Debt Problems
- F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
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Citations
Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.Cited by:
- Caglayan, Mustafa & Filiztekin, Alpay, 2012. "The law of one price and the role of market structure," MPRA Paper 36975, University Library of Munich, Germany.
- MarioJ. Crucini & Mototsugu Shintani & Takayuki Tsuruga, 2010.
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