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Market Integration Dynamics and Asymptotic Price Convergence in Distribution

Author

Listed:
  • Alfredo García-Hiernaux

    (Complutense University of Madrid, Spain)

  • David E. Guerrero

    (CUNEF Colegio Universitario de Estudios Financieros, Madrid, Spain)

  • Michael McAleer

    (National Tsing Hua University, Taiwan, Erasmus University Rotterdam, The Netherlands; Complutense University of Madrid, Spain)

Abstract

In this paper we analyse the market integration process of the relative price distribution, develop a model to analyze market integration, and present a formal test of increasing market integration. We distinguish between the economic concepts of price convergence in mean and in variance. When both types of convergence occur, prices are said to converge in distribution. We present concepts and definitions related to the market integration process, link this to price convergence in distribution, argue that the Law of One Price (LOP) is not a sufficient condition for market integration, and present a formal test of price convergence in distribution. In the empirical analysis, we analyze integration of the inland grains market in 19th Century USA.

Suggested Citation

  • Alfredo García-Hiernaux & David E. Guerrero & Michael McAleer, 2013. "Market Integration Dynamics and Asymptotic Price Convergence in Distribution," Tinbergen Institute Discussion Papers 13-128/III, Tinbergen Institute.
    • Handle: RePEc:tin:wpaper:20130128
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    References listed on IDEAS

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    Cited by:

    1. Garcia-Hiernaux, Alfredo & Gonzalez-Perez, Maria T. & Guerrero, David E., 2023. "Eurozone prices: A tale of convergence and divergence," Economic Modelling, Elsevier, vol. 126(C).
    2. Zhao, Xin & Calvin, Katherine V. & Wise, Marshall A. & Iyer, Gokul, 2021. "The role of global agricultural market integration in multiregional economic modeling: Using hindcast experiments to validate an Armington model," Economic Analysis and Policy, Elsevier, vol. 72(C), pages 1-17.
    3. David Gray, 2021. "A simple measure of beta-convergence revisited," Urban Studies, Urban Studies Journal Limited, vol. 58(12), pages 2569-2583, September.

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    More about this item

    Keywords

    Regional and global markets; Integration; Asymptotic price convergence; Mean; Variance; Distribution;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • N70 - Economic History - - Economic History: Transport, International and Domestic Trade, Energy, and Other Services - - - General, International, or Comparative
    • F15 - International Economics - - Trade - - - Economic Integration

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