IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Temporal Aggregation and Convergence to the Law of One Price: Evidence from Micro Data

  • Andres Elberg

    ()

    (Facultad de Economía y Empresa, Universidad Diego Portales)

Estimates of speed of convergence towards the Law of One Price (LOP) are potentially afflicted by three sources of bias: temporal aggregation; aggregation across goods; and short samples. I empirically assess the importance of temporal aggregation bias (while accounting for the other two sources of bias) using a novel dataset of weekly-sampled retail prices. I find that temporal aggregation can severely bias estimates of persistence in relative prices. Using quarterly aggregated data can overestimate the half-life of deviations from the LOP by a factor exceeding 2. In contrast, I do not find evidence that aggregation across goods biases persistence estimates.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.udp.cl/descargas/facultades_carreras/economia/pdf/documentos_investigacion/wp_53_temporal_aggregation.pdf
Download Restriction: no

Paper provided by Facultad de Economía y Empresa, Universidad Diego Portales in its series Working Papers with number 53.

as
in new window

Length:
Date of creation: Apr 2014
Date of revision:
Handle: RePEc:ptl:wpaper:53
Contact details of provider: Web page: http://www.udp.cl

More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. MarioJ. Crucini & Mototsugu Shintani & Takayuki Tsuruga, 2010. "The Law of One Price without the Border: The Role of Distance versus Sticky Prices," Economic Journal, Royal Economic Society, vol. 120(544), pages 462-480, 05.
  2. So, Beong Soo & Shin, Dong Wan, 1999. "Recursive mean adjustment in time-series inferences," Statistics & Probability Letters, Elsevier, vol. 43(1), pages 65-73, May.
  3. Andrea Silvestrini & David Veredas, 2008. "Temporal aggregation of univariate and multivariate time series models: A survey," Temi di discussione (Economic working papers) 685, Bank of Italy, Economic Research and International Relations Area.
  4. Serena Ng & Pierre Perron, 2001. "LAG Length Selection and the Construction of Unit Root Tests with Good Size and Power," Econometrica, Econometric Society, vol. 69(6), pages 1519-1554, November.
  5. Mario J. Crucini & Mototsugu Shintani, 2002. "Persistence in Law-Of-One-Price Deviations: Evidence from Micro-Data," Vanderbilt University Department of Economics Working Papers 0222, Vanderbilt University Department of Economics, revised Jul 2004.
  6. Chambers, Marcus J., 2005. "The purchasing power parity puzzle, temporal aggregation, and half-life estimation," Economics Letters, Elsevier, vol. 86(2), pages 193-198, February.
  7. Jean Imbs & Haroon Mumtaz & Morten Ravn & Hélène Rey, 2005. "PPP Strikes Back: Aggregation and the Real Exchange Rate," The Quarterly Journal of Economics, MIT Press, vol. 120(1), pages 1-43, January.
  8. Chi-Young Choi & Nelson Mark & Donggyu Sul, 2004. "Unbiased Estimation of the Half-Life to PPP Convergence in Panel Data," NBER Working Papers 10614, National Bureau of Economic Research, Inc.
  9. Matei Demetrescu & Uwe Hassler & Adina-Ioana Tarcolea, 2006. "Combining Significance of Correlated Statistics with Application to Panel Data," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 68(5), pages 647-663, October.
  10. Choi, In, 2001. "Unit root tests for panel data," Journal of International Money and Finance, Elsevier, vol. 20(2), pages 249-272, April.
  11. Janet Ceglowski, 2003. "The law of one price: intranational evidence for Canada," Canadian Journal of Economics, Canadian Economics Association, vol. 36(2), pages 373-400, May.
  12. Virgiliu Midrigan, 2011. "Menu Costs, Multiproduct Firms, and Aggregate Fluctuations," Econometrica, Econometric Society, vol. 79(4), pages 1139-1180, 07.
  13. Andres Elberg, 2014. "Heterogeneous Price Dynamics, Synchronization, and Retail Chains: Evidence from Scanner Data," Working Papers 52, Facultad de Economía y Empresa, Universidad Diego Portales.
  14. Etienne Gagnon, 2007. "Price setting during low and high inflation: evidence from Mexico," International Finance Discussion Papers 896, Board of Governors of the Federal Reserve System (U.S.).
  15. 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.
  16. David C. Parsley & Shang-Jin Wei, 1996. "Convergence to the Law of One Price Without Trade Barriers or Currency Fluctuations," NBER Working Papers 5654, National Bureau of Economic Research, Inc.
  17. Pinelopi Koujianou Goldberg & Michael M. Knetter, 1997. "Goods Prices and Exchange Rates: What Have We Learned?," Journal of Economic Literature, American Economic Association, vol. 35(3), pages 1243-1272, September.
  18. Mario J. Crucini & Chris I. Telmer & Marios Zachariadis, 2005. "Understanding European Real Exchange Rates," American Economic Review, American Economic Association, vol. 95(3), pages 724-738, June.
  19. Martin Eichenbaum & Nir Jaimovich & Sergio Rebelo, 2011. "Reference Prices, Costs, and Nominal Rigidities," American Economic Review, American Economic Association, vol. 101(1), pages 234-62, February.
  20. Lucio Sarno & Mark P. Taylor, . "Real Exchange Rates under the Recent Float: Unequivocal Evidence of Mean Reversion," Economics and Finance Discussion Papers 97-14, Economics and Finance Section, School of Social Sciences, Brunel University.
  21. Richardson, J. David, 1978. "Some empirical evidence on commodity arbitrage and the law of one price," Journal of International Economics, Elsevier, vol. 8(2), pages 341-351, May.
  22. C. Simon Fan & Xiangdong Wei, 2006. "The Law of One Price: Evidence from the Transitional Economy of China," The Review of Economics and Statistics, MIT Press, vol. 88(4), pages 682-697, November.
  23. Sarno, Lucio & Taylor, Mark P, 1997. "The Behaviour of Real Exchange Rates During the Post-Bretton Woods Period," CEPR Discussion Papers 1730, C.E.P.R. Discussion Papers.
  24. Andrews, Donald W K & Chen, Hong-Yuan, 1994. "Approximately Median-Unbiased Estimation of Autoregressive Models," Journal of Business & Economic Statistics, American Statistical Association, vol. 12(2), pages 187-204, April.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:ptl:wpaper:53. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Enrique Calfucura)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.