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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)