TY  - JOUR
AU  - Engel, Charles
AU  - Rogers, John H
TI  - Regional Patterns in the Law of One Price: The Roles of Geography vs. Currencies
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 5395
PY  - 1995
Y2  - December 1995
DO  - 10.3386/w5395
UR  - http://www.nber.org/papers/w5395
L1  - http://www.nber.org/papers/w5395.pdf
N1  - Author contact info:
Charles Engel
Department of Economics
University of Wisconsin
1180 Observatory Drive
Madison, WI  53706-1393
Tel: 608/262-3697
Fax: 608/262-2033
E-Mail: cengel@ssc.wisc.edu

John Rogers
Federal Reserve Board
International Finance Division
Mail Stop 20
Washington, DC 20551
Tel: 202/452-2873
Fax: 202/452-6424
E-Mail: JOHN.H.ROGERS@FRB.GOV
M1  - published as Charles Engel, John Rogers. "Regional Patterns in the Law of One Price: The Roles of Geography versus Currencies," in Jeffrey A. Frankel, editor, "The Regionalization of the World Economy" University of Chicago Press (1998)

AB  - We find evidence that the law of one price (LOOP) holds more nearly for country pairs that are within geographic regions than for country pairs that are not.  These findings are established using disaggregated consumer price data from 23 countries (including data from eight North American cities).  We find that failures of LOOP are closely related to nominal exchange rate variability, suggesting a link to sticky nominal prices.  We also find that distance can explain failures of LOOP, suggesting the failures arise from imperfect market integration.  However, these two sources do not explain all of the failure of LOOP.  We speculate that integrated marketing and distribution systems within regions cause LOOP to hold more nearly intraregionally.  We present a formal model of marketing and distribution to illustrate this hypothesis.
ER  -