Mette Ejrnæs (Department of Economics, University of Copenhagen) Karl Gunnar Persson (Department of Economics, University of Copenhagen)
Abstract
This paper looks at the gains from improved market efficiency in long-distance grain trade in the second half of the 19th century when violations of the law of one price were reduced due to improved information transmission. Two markets, a major export centre, Chicago, and a major importer, Liverpool, are analyzed. We show that there was a law of one price equilibrium throughout the period but that markets displayed spells of demand- or supply-constrained trade when the law of one price was violated. Over time adjustments back to equilibrium, as measured by the half-life of a shock, become faster, violations of the law of one price become smaller and hence less persistent. There were also significant gains from improved market efficiency but that improvement took place after the information ‘regime’ shifted from pre-telegraphic communication to a regime with swift transmission of information in an era which developed a sophisticated commercial press and telegraphic communication. Improved market efficiency probably stimulated trade more than falling transport costs.
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Publisher Info
Paper provided by University of Copenhagen. Department of Economics in its series Discussion Papers with number
06-19.
Find related papers by JEL classification: F1 - International Economics - - Trade C5 - Mathematical and Quantitative Methods - - Econometric Modeling N7 - Economic History - - Economic History: Transport, International and Domestic Trade, Energy, and Other Services
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References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
Froot, Kenneth A. & Kim, Michael & Rogoff, Kenneth, 1995.
"The Law of One Price Over 700 Years,"
Working Papers
95-13, C.V. Starr Center for Applied Economics, New York University.
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