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Purchasing power parity yet again: evidence from spatially separated commodity markets

this paper examines the empirical validity of the law of one price by exploiting the non-stationarity of prices, set in US dollars, of varieties of wheat that are traded simultaneously in the USA, Rotterdam and Japan. We demonstrate the crucial role of transport costs in achieving cointegration (lon...

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Bibliographic Details
Published in:Journal of international money and finance 1994-12, Vol.13 (6), p.637-657
Main Authors: Michael, Panos, Nobay, A Robert, Peel, David
Format: Article
Language:English
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Summary:this paper examines the empirical validity of the law of one price by exploiting the non-stationarity of prices, set in US dollars, of varieties of wheat that are traded simultaneously in the USA, Rotterdam and Japan. We demonstrate the crucial role of transport costs in achieving cointegration (long-run PPP). Although systematic short-run deviations from PPP occur, we show that this does not imply profitable arbitrage opportunities. (JEL C5, F3, G1).
ISSN:0261-5606
1873-0639
DOI:10.1016/0261-5606(94)90036-1