International Monetary Trade and the Law of One Price

33 Pages Posted: 21 Dec 2014

See all articles by Gabriele Camera

Gabriele Camera

Chapman University - Economic Science Institute; University of Bologna - Dept. of Economics

Johannes Winkler

Independent

Date Written: August 20, 2002

Abstract

We endogenize circulation of currencies and price formation in a decentralized monetary trading environment with two countries and two currencies. In equilibrium sellers of homogenous goods may post prices in the national or also in the foreign currency, given buyers' unobservable valuations. We prove that, under different monetary regimes, the absence of well integrated international goods markets don't necessarily imply a violation of the law of one price. We also illustrate the behavior of prices across regimes characterized by different degrees of monetary integration.

Keywords: search, international currency, price posting, money

Suggested Citation

Camera, Gabriele and Winkler, Johannes, International Monetary Trade and the Law of One Price (August 20, 2002). Journal of Monetary Economics, Vol. 50, No. 7, 2003. Available at SSRN: https://ssrn.com/abstract=2540730

Gabriele Camera (Contact Author)

Chapman University - Economic Science Institute ( email )

Orange, CA 92866
United States

HOME PAGE: http://www1.chapman.edu/~camera/

University of Bologna - Dept. of Economics ( email )

Strada Maggiore 45
Bologna, 40125
Italy

Johannes Winkler

Independent

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