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Integration and Co-integration: Do Canada-U.S. Manufacturing Prices Obey the Law of One Price?

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Author Info
Bernard, André
Warren, Paul
Yan, Beiling

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Abstract

This paper uses a detailed industry-level data base of industry prices in the manufacturing sector in Canada and the United States to investigate whether prices are co-integrated in the two countries and whether the relationship between the two sets of prices follows the law of one price. We find that aggregate Canadian price movements track U.S. price movements closely, but not perfectly, in the long run. But there are substantial deviations from the law of one price in the short run. Moreover, many individual industries deviate from the law of one price. These deviations are related to the degree of tariff protection and to the degree of product differentiation at the industry level.

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Paper provided by Statistics Canada, Analytical Studies Branch in its series Economic Analysis (EA) Research Paper Series with number 2005029e.

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Date of creation: 15 Feb 2005
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Handle: RePEc:stc:stcp5e:2005029e

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Related research
Keywords: Manufacturing; Business performance and ownership; Prices and price indexes; Business adaptation and adjustment; Intercity and international price comparisons;

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