Persistence in Law-Of-One-Price Deviations: Evidence from Micro-Data

Mario Crucini () and Mototsugu Shintani

No 616, Vanderbilt University Department of Economics Working Papers from Vanderbilt University Department of Economics

Abstract: We study the dynamics of good-by-good real exchange rates using a micro-panel of 270 goods prices drawn from major cities in 63 countries and 258 goods prices drawn from 13 major U.S. cities. We find the half-life of deviations from the Law-of-One-Price for the average good is about 1 year. The average half-life is very similar across the OECD, the LCD and within the U.S., suggesting little in the way of nominal exchange rate regime influences. The average non-traded good has a half-life of 1.9 years compared to 1.2 years for traded-goods, for the OECD, with modest differences elsewhere. Aggregating the micro-data increases persistence in the OECD by 6 months to 1.5 years, well below levels obtained using aggregate CPI data. We attribute these differences to conceptual and methodological factors and argue in favor of increased use of micro-price data in applied theory.

Keywords: Real exchange rates; purchasing power parity; law of one price; dynamic panel (search for similar items in EconPapers)
JEL-codes: D40 E31 F31 (search for similar items in EconPapers)
Date: 2006-07
New Economics Papers: this item is included in nep-cba, nep-ifn and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (16)

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http://www.accessecon.com/pubs/VUECON/vu06-w16.pdf Revised version, 2006, Original version 2002-12 (application/pdf)

Related works:
Journal Article: Persistence in law of one price deviations: Evidence from micro-data (2008)
Working Paper: Persistence in Law-of-One-Price Deviations: Evidence from Micro-data (2006)
Working Paper: Persistence in Law-Of-One-Price Deviations: Evidence from Micro-Data (2004)
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Persistent link: https://EconPapers.repec.org/RePEc:van:wpaper:0616

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