The Law of One Price Over 700 Years
This paper examines annual commodity price data from England and Holland over a span of seven centuries. Our data incorporates transaction prices on seven commodities: barley, butter, cheese, oats, peas, silver, and wheat, as well as pound/shilling nominal exchange rates going back, in some cases, to 1273. We find that the magnitude, volatility, and persistence of deviations from the law of one price have not declined by as much as one might expect. We find this despite lower transport costs, reduced trade protection, and fewer wars and plagues in the modern era. Our analysis is consistent with growing evidence that goods-market arbitrage remains highly imperfect, even today.
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- Lothian, James R. & Taylor, Mark P., 1997. "Real exchange rate behavior," Journal of International Money and Finance, Elsevier, vol. 16(6), pages 945-954, December.
- Giovannini, Alberto, 1988. "Exchange rates and traded goods prices," Journal of International Economics, Elsevier, vol. 24(1-2), pages 45-68, February.
- Charles Engel, 1991. "Is real exchange rate variability caused by relative price changes? An empirical investigation," Research Working Paper 91-02, Federal Reserve Bank of Kansas City.
- Rogers, J.H. & Jenkins, M.A., 1993.
"Haircuts or Hysteresis? Sources of Movements in Real Exchange Rates,"
4-93-6, Pennsylvania State - Department of Economics.
- Rogers, John H. & Jenkins, Michael, 1995. "Haircuts or hysteresis? Sources of movements in real exchange rates," Journal of International Economics, Elsevier, vol. 38(3-4), pages 339-360, May.
- Isard, Peter, 1977. "How Far Can We Push the "Law of One Price"?," American Economic Review, American Economic Association, vol. 67(5), pages 942-48, December.
- John H. Rogers, 1995. "Real shocks and real exchange rates in really long-term data," International Finance Discussion Papers 493, Board of Governors of the Federal Reserve System (U.S.).
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