1) The relative version of the law of one price
posits that rates of change in prices will be equalized, meaning that exchange rate-adjusted inflation rates should be the same for similar traded goods.
Section 4 uses a general co-integration approach to test (1) the existence of a long-run relationship between the domestic prices, the exchange rate, the international prices, and, when applicable, the domestic "support" prices; and (2) whether the law of one price
applies, at least in a "weak" sense, allowing for a possible constant wedge between domestic and international prices.
Letting [Mathematical Expression Omitted] and [Mathematical Expression Omitted] represent the prices of sesame seeds in Britain (in pounds) and the United States (in dollars), respectively, then the law of one price
can be expressed as follows:
When aggregated over all goods, the law of one price
yields the purchasing power parity, which is stated as
My 1993 paper(4) asks whether the general pattern assumed by the neoclassical models - that failures of the law of one price
across countries are relatively small, and that there are significant relative price changes within countries - is true in the data.
Wei, "Convergence to the Law of One Price
Without Trade Barriers or Currency Fluctuations," NBER Working Paper No.
Also of importance are the permissible deviations from the law of one price
Sampling And Specification Biases In Mean-Reversion Tests Of The Law Of One Price
Adjusted comparable prices and the law of one price
Among the topics are empirical evidence on the theory of non-renewable resource economics, bioeconomics: nature as capital, biological resistance, the spatial economics of forest conservation, water institutions and the law of one price
, and transboundary water issues.
Seigniorage benefits are significant-for example, the US has enjoyed a higher rate of return on its assets held abroad than it has had to pay foreigners on their dollar assets for every single quarter since 1960-defying the law of one price
Building on existing literature on cross-listing and using the data of listed Chinese companies from 1993 to 2010, Liu examines the relevance of the theories of bonding hypothesis, co-integration, and the law of one price
in the context of Chinese firms' cross-listing in the six major international capital markets.