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Price variability and the speed of adjustment to the law of one price : evidence from Slovakia

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  • Horvath, Julius
  • Vidovic, Stanislav

Abstract

This paper uses a large panel data set of monthly frequency final good and service prices in thirty-eight Slovak districts over a five-year period to study price variability and the working of the law of one price.We concentrate on three issues.First, using simple statistical tools, we investigate the range of price differences across Slovak districts.Second, we measure relative price variability across cities and across products.The variability of relative prices in the same district appears to be higher than the variability of prices of the same good across different districts.We identify the factors likely to be responsible for this fact.Third, using benchmarks we investigate the speed of convergence to the absolute law of one price.While we find evidence for absolute convergence, the speed is lower than that found in US cities.The speed of convergence to the relative law of one price is considerably higher.

Suggested Citation

  • Horvath, Julius & Vidovic, Stanislav, 2004. "Price variability and the speed of adjustment to the law of one price : evidence from Slovakia," BOFIT Discussion Papers 3/2004, Bank of Finland, Institute for Economies in Transition.
  • Handle: RePEc:bof:bofitp:2004_003
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    Cited by:

    1. Fabrizio Coricelli & Roman Horváth, 2010. "Price setting and market structure: an empirical analysis of micro data in Slovakia," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 31(2-3), pages 209-233.
    2. Wimanda, Rizki E., 2009. "Price variability and price convergence: Evidence from Indonesia," Journal of Asian Economics, Elsevier, vol. 20(4), pages 427-442, September.
    3. Coricelli, Fabrizio & Horváth, Roman, 2006. "Price Setting Behaviour: Micro Evidence on Slovakia," CEPR Discussion Papers 5445, C.E.P.R. Discussion Papers.
    4. Fabrizio Coricelli & Roman Horvath, 2008. "Price Setting And Market Structure: An Empirical Analysis Of Micro Data," William Davidson Institute Working Papers Series wp938, William Davidson Institute at the University of Michigan.
    5. Gluschenko, Konstantin, 2010. "The Law of One Price in the Russian Economic Space," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 17(1), pages 3-19.

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