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One Market, One Money, One Price?

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  • Allington, Nigel FB
  • Kattuman, Paul A
  • Waldmann, Florian A
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    Abstract

    The introduction of the euro was intended to integrate markets within Europe further, after the implementation of the 1992 Single Market Project. We examine the extent to which this objective has been achieved, by examining the degree of price dispersion between countries in the euro zone, compared to a control group of EU countries outside the euro zone. We also establish the role of exchange rate risk in hampering arbitrage by estimating the euro effect for subgroups within the euro zone, utilizing differences among EU countries in participation in the Exchange Rate Mechanism. Our results, in contrast with previous empirical research, suggest robustly that the euro has had a significant integrating effect.

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    Bibliographic Info

    Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 835.

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    Date of creation: 21 Mar 2005
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    Publication status: Published in International Journal of Central Banking Number 3.Volume(2005): pp. 73-115
    Handle: RePEc:pra:mprapa:835

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    1. John H. Rogers, 2001. "Price level convergence, relative prices, and inflation in Europe," International Finance Discussion Papers, Board of Governors of the Federal Reserve System (U.S.) 699, Board of Governors of the Federal Reserve System (U.S.).
    2. Matthias Lutz, 2003. "Price Convergence under EMU? First Estimates," University of St. Gallen Department of Economics working paper series 2003 2003-08, Department of Economics, University of St. Gallen.
    3. Parsley, David C & Wei, Shang-Jin, 1996. "Convergence to the Law of One Price without Trade Barriers or Currency Fluctuations," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 111(4), pages 1211-36, November.
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    5. Ernst Fehr & Jean-Robert Tyran, 2001. "Does Money Illusion Matter?," American Economic Review, American Economic Association, American Economic Association, vol. 91(5), pages 1239-1262, December.
    6. Philip R. Lane & Patrick Honohan, 2003. "Divergent Inflation Rates in EMU," Trinity Economics Papers, Trinity College Dublin, Department of Economics 20034, Trinity College Dublin, Department of Economics.
    7. Jonathan Haskel & Holger Wolf, 2001. "The Law of One Price - A Case Study," NBER Working Papers 8112, National Bureau of Economic Research, Inc.
    8. Alejandro Micco & Ernesto H. Stein & Guillermo Luis Ordoñez, 2003. "The Currency Union Effect on Trade: Early Evidence from EMU," Research Department Publications, Inter-American Development Bank, Research Department 4339, Inter-American Development Bank, Research Department.
    9. Parsley, David & Wei, Shang-Jin, 2001. "Limiting Currency Volatility to Stimulate Goods Market Integration: a Price-Based Approach," CEPR Discussion Papers, C.E.P.R. Discussion Papers 2958, C.E.P.R. Discussion Papers.
    10. Maria ELEFTHERIOU, 2003. "On the Robustness of the "Taylor Rule" in the EMU," Economics Working Papers, European University Institute ECO2003/17, European University Institute.
    11. Charles Engel & John H. Rogers, 1995. "How wide is the border?," Research Working Paper, Federal Reserve Bank of Kansas City 95-09, Federal Reserve Bank of Kansas City.
    12. Andrew K. Rose, 2000. "One money, one market: the effect of common currencies on trade," Economic Policy, CEPR;CES;MSH, CEPR;CES;MSH, vol. 15(30), pages 7-46, 04.
    13. Slaughter, Matthew J., 2001. "Trade liberalization and per capita income convergence: a difference-in-differences analysis," Journal of International Economics, Elsevier, Elsevier, vol. 55(1), pages 203-228, October.
    14. Richard B. Freeman, 1995. "Are Your Wages Set in Beijing?," Journal of Economic Perspectives, American Economic Association, vol. 9(3), pages 15-32, Summer.
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    16. Pinelopi K. Goldberg & Frank Verboven, 2001. "Market Integration and Convergence to the Law of One Price: Evidence from the European Car Market," NBER Working Papers 8402, National Bureau of Economic Research, Inc.
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    Cited by:
    1. Jiøí Schwarz, 2011. "Impact of Institutions on Cross-Border Price Dispersion," Working Papers IES, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies 2011/30, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised Sep 2011.
    2. Jan-Egbert Sturm & Ulrich Fritsche & Michael Graff & Michael Lamla & Sarah Lein & Volker Nitsch & David Liechti & Daniel Triet, 2009. "The euro and prices: changeover-related inflation and price convergence in the euro area," European Economy - Economic Papers, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission 381, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.
    3. Christian Dreger & Konstantin Kholodilin & Kirsten Lommatzsch & Jiri Slacalek & Przemyslaw Wozniak, 2007. "Price Convergence in the Enlarged Internal Market," Discussion Papers of DIW Berlin 730, DIW Berlin, German Institute for Economic Research.
    4. Becker, Sascha & Nautz, Dieter, 2010. "Inflation, price dispersion and market integration through the lens of a monetary search model," Discussion Papers 2010/2, Free University Berlin, School of Business & Economics.
    5. van der Cruijsen, Carin & Demertzis, Maria, 2011. "How anchored are inflation expectations in EMU countries?," Economic Modelling, Elsevier, Elsevier, vol. 28(1), pages 281-298.
    6. Guerreiro, David & Mignon, Valérie, 2013. "On price convergence in Eurozone," Economic Modelling, Elsevier, Elsevier, vol. 34(C), pages 42-51.
    7. Fischer, Christoph, 2009. "Price convergence in the EMU? Evidence from micro data," Discussion Paper Series 1: Economic Studies 2009,06, Deutsche Bundesbank, Research Centre.
    8. Oliver Holtemöller & Götz Zeddies, 2013. "Has the Euro increased international price elasticities?," Empirica, Springer, Springer, vol. 40(1), pages 197-214, February.
    9. Michael R. Baye & J. Rupert J. Gatti & Paul Kattuman & John Morgan, 2006. "Did the Euro Foster Online Price Competition? Evidence from an International Price Comparison Site," Economic Inquiry, Western Economic Association International, Western Economic Association International, vol. 44(2), pages 265-279, April.
    10. Isabelle Méjean & Cyrille Schwellnus, 2009. "Price Convergence in the European Union: Within Firms or Composition of Firms?," Working Papers 2009-03, CEPII research center.
    11. Václav Žďárek, 2011. "An Empirical Analysis of Price Convergence of the Czech Republic and the New EU Member States towards the Euro Area," Politická ekonomie, University of Economics, Prague, University of Economics, Prague, vol. 2011(4), pages 454-474.
    12. Sascha S. Becker, 2011. "What Drives the Relationship Between Inflation and Price Dispersion? Market Power vs. Price Rigidity," SFB 649 Discussion Papers SFB649DP2011-019, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.

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