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A Dynamic, General Equilibrium Analysis of Deviations From the Laws of One Price

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  • Lapham, Beverly J.

Abstract

There are at least two versions of the Law of One Price under the assumptions of perfect competition, no trade barriers, and no transport costs. One version predicts equal prices of competing goods sold in the same country and manufactured by producers located in different countries. Another version predicts equal prices of a good manufactured by a single producer and sold in different countries when prices are converted to a common currency. Empirical studies suggest persistent, time-varying deviations from both versions of the Law of One Price. This paper explores a stochastic, dynamic, general equilibrium theoretical economy with explicitly strategic price setting behavior. The equilibrium processes generated by the economy exhibit properties which are generally consistent with persistent, time-varying deviations from the Laws of One Price.
(This abstract was borrowed from another version of this item.)
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Lapham, Beverly J., 1990. "A Dynamic, General Equilibrium Analysis of Deviations From the Laws of One Price," Queen's Economics Department Working Papers 273194, Queen's University - Department of Economics.
    • Handle: RePEc:ags:quedwp:273194
    DOI: 10.22004/ag.econ.273194
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    2. Andrew Atkeson & Ariel Burstein, 2008. "Pricing-to-Market, Trade Costs, and International Relative Prices," American Economic Review, American Economic Association, vol. 98(5), pages 1998-2031, December.
    3. Betts, Caroline M. & Kehoe, Timothy J., 2006. "U.S. real exchange rate fluctuations and relative price fluctuations," Journal of Monetary Economics, Elsevier, vol. 53(7), pages 1297-1326, October.
    4. Ugur Ciplak, 2007. "Real Exchange Rate Fluctuations and Relative Prices in Turkey," Central Bank Review, Research and Monetary Policy Department, Central Bank of the Republic of Turkey, vol. 7(2), pages 29-48.
    5. Yilmazkuday, Hakan, 2016. "Constant versus variable markups: Implications for the law of one price," International Review of Economics & Finance, Elsevier, vol. 44(C), pages 154-168.
    6. Burstein, Ariel & Gopinath, Gita, 2014. "International Prices and Exchange Rates," Handbook of International Economics, in: Gopinath, G. & Helpman, . & Rogoff, K. (ed.), Handbook of International Economics, edition 1, volume 4, chapter 0, pages 391-451, Elsevier.
    7. Andrés Sagner, 2010. "Implied Probability Distribution in Financial Options," Working Papers Central Bank of Chile 597, Central Bank of Chile.
    8. Lukasz A. Drozd & Jaromir B. Nosal, 2012. "Understanding International Prices: Customers as Capital," American Economic Review, American Economic Association, vol. 102(1), pages 364-395, February.
    9. David K. Backus & Patrick J. Kehoe & Finn E. Kydland, 1992. "Relative price movements in dynamic general equilibrium models of international trade," Working Papers (Old Series) 9213, Federal Reserve Bank of Cleveland.
    10. Obstfeld, Maurice & Taylor, Alan M., 1997. "Nonlinear Aspects of Goods-Market Arbitrage and Adjustment: Heckscher's Commodity Points Revisited," Journal of the Japanese and International Economies, Elsevier, vol. 11(4), pages 441-479, December.
    11. Lapham, Beverly & Leung, Danny, 2006. "Industry Restructuring, Mark-ups, and Exchange Rate Pass-Through," Queen's Economics Department Working Papers 273596, Queen's University - Department of Economics.
    12. Harold Creusen & Henk Kox & Arjan Lejour & Roger Smeets, 2011. "Exploring the Margins of Dutch Exports: A Firm-Level Analysis," De Economist, Springer, vol. 159(4), pages 413-434, December.
    13. Dedola, Luca & Leduc, Sylvain, 2001. "Why Is the Business-Cycle Behaviour of Fundamentals Alike across Exchange-Rate Regimes?," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 6(4), pages 401-419, October.
    14. David K. Backus & Patrick J. Kehoe & Finn E. Kydland, 1993. "International business cycles: theory vs. evidence," Quarterly Review, Federal Reserve Bank of Minneapolis, vol. 17(Fall), pages 14-29.
    15. David K. Backus & Patrick J. Kehoe & Finn E. Kydland, 1993. "International Business Cycles: Theory and Evidence," Working Papers 93-21, New York University, Leonard N. Stern School of Business, Department of Economics.

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