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The Law of One Price Over 700 Years

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Listed:
  • Mr. Kenneth Rogoff
  • Mr. Kenneth Froot
  • Mr. Michael Kim

Abstract

This paper examines annual commodity price data from England and Holland over a span of seven centuries. Our data incorporates transaction prices on seven commodities: barley, butter, cheese, oats, peas, silver, and wheat, as well as pound/shilling nominal exchange rates going back, in some cases, to 1273. We find that the magnitude, volatility, and persistence of deviations from the law of one price have not declined by as much as one might expect. We find this despite lower transport costs, reduced trade protection, and fewer wars and plagues in the modern era. Our analysis is consistent with growing evidence that goods-market arbitrage remains highly imperfect, even today.

Suggested Citation

  • Mr. Kenneth Rogoff & Mr. Kenneth Froot & Mr. Michael Kim, 2001. "The Law of One Price Over 700 Years," IMF Working Papers 2001/174, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:2001/174
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    References listed on IDEAS

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    More about this item

    Keywords

    WP; standard deviation; time series; simple average; standard error; purchasing power parity; exchange rates; price deviation; commodity price series; price trend; price movement; price differential; Agricultural commodities; Commodity prices; Metal prices; Silver; Europe;
    All these keywords.

    JEL classification:

    • F30 - International Economics - - International Finance - - - General

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