Can the Law of One Price be tested?
AbstractA simple stylised model, that incorporates transaction costs, is developed. The Law of One Price (LOP) is assumed to hold with regard to a reference market that is not taken into account in the empirical testing of the Law. It is shown that under these assumptions the empirical tests of the LOP will fail.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 628.
Date of creation: 17 Jan 2006
Date of revision: 17 Jan 2006
Law of one price; purchasing power parity; transaction costs;
Find related papers by JEL classification:
- F14 - International Economics - - Trade - - - Empirical Studies of Trade
- F0 - International Economics - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-11-12 (All new papers)
- NEP-CBA-2006-11-12 (Central Banking)
- NEP-IFN-2006-11-12 (International Finance)
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