The Law of One Price Over 700 Years

73 Pages Posted: 14 Jun 2000 Last revised: 19 Aug 2010

See all articles by Kenneth Froot

Kenneth Froot

National Bureau of Economic Research (NBER); Harvard University - Business School (HBS)

Michael Kim

Pennsylvania State University, College of the Liberal Arts - Department of Economic

Kenneth Rogoff

Harvard University - Department of Economics; National Bureau of Economic Research (NBER)

Multiple version iconThere are 3 versions of this paper

Date Written: May 1995

Abstract

This paper examines annual commodity price data from England and Holland over a span of seven centuries. Our data set incorporates transactions prices on 8 commodities: barley, butter, cheese, eggs, oats, peas, silver, wheat as well as pound/shilling nominal exchange rates going back, in some cases, to 1273. We find that the volatility and persistence of deviations from the law of one price have been remarkably stable over time. LOP deviations are highly correlated across commodities (especially at annual horizons) and, for most pairwise comparisons in most centuries, at least as volatile as relative prices across different goods within the same country. Our analysis challenges the conventional view that the modern floating exchange rate experience is exceptional in terms of the behavior of relative (exchange-rate adjusted) prices across countries.

Suggested Citation

Froot, Kenneth and Kim, Michael and Rogoff, Kenneth S., The Law of One Price Over 700 Years (May 1995). NBER Working Paper No. w5132. Available at SSRN: https://ssrn.com/abstract=225197

Kenneth Froot (Contact Author)

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Harvard University - Business School (HBS) ( email )

Soldiers Field Road
Morgan 270C
Boston, MA 02163
United States

Michael Kim

Pennsylvania State University, College of the Liberal Arts - Department of Economic ( email )

524 Kern Graduate Building
University Park, PA 16802-3306
United States

Kenneth S. Rogoff

Harvard University - Department of Economics ( email )

Littauer Center
Room 232
Cambridge, MA 02138
United States
617-495-4022 (Phone)
617-495-7730 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
89
Abstract Views
1,856
rank
90,881
PlumX Metrics