One Market, One Money, One Price? Price Dispersion in the European Union
University of Cambridge Judge Institute of Management Working Paper
37 Pages Posted: 24 Dec 2004
Date Written: 2004
The introduction of the euro was intended to integrate markets within Europe further, after the implementation of the 1992 Single Market Project. We examine the extent to which this objective has been achieved, by examining the degree of price dispersion between countries in the eurozone, compared to a control group of EU countries outside the eurozone. We also establish the role of exchange rate risk in hampering arbitrage by estimating the euro-effect for sub-groups within eurozone, utilising differences among EU countries in participating in the Exchange Rate Mechanism. Our results, in contrast with previous empirical research, suggest robustly that the euro has had a significant integrating effect.
Keywords: Euro, EMU, price dispersion, difference-in-differences, exchange rate risk
JEL Classification: E31, E42, F01
Suggested Citation: Suggested Citation