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The Law of One Price: Conditional Convergence Evidence from Disaggregated Data
[journal article]
Abstract This paper contributes to the literature on the Law of One Price
(LOP) and absolute Purchasing Power Parity (PPP) in two ways.
First, it uses a novel set of PPP data from the International
Comparison Programme for OECD countries and 195 internationally
comparable products from 1980 to 1996. Second, ... view more
This paper contributes to the literature on the Law of One Price
(LOP) and absolute Purchasing Power Parity (PPP) in two ways.
First, it uses a novel set of PPP data from the International
Comparison Programme for OECD countries and 195 internationally
comparable products from 1980 to 1996. Second, it derives and
applies a test of conditional sigma-convergence, which does not
require long time spans or high frequency data. Between 1990 and
1996 for 10 out of 23 countries a significant reduction in the
variance of the deviations from LOP is found for tradeables, but
none in case of non-tradeables. For the former, the deviations
from LOP close out at half-lives between 2.2 and 6.3 years.
However, there are also persistent country-specific deviations
from LOP parities.... view less
Document language
English
Publication Year
2009
Page/Pages
p. 3345-3357
Journal
Applied Economics, 41 (2009) 26
DOI
https://doi.org/10.1080/00036840701426584
Status
Postprint; peer reviewed
Licence
PEER Licence Agreement (applicable only to documents from PEER project)