Exchange Rate Uncertainty and the Law of One Price

REVIEW OF INTERNATIONAL ECONOMICS

Posted: 12 Jun 1997

See all articles by William F. Maloney

William F. Maloney

World Bank - Poverty and Economic Management Unit; IZA Institute of Labor Economics; World Bank - Development Research Group (DECRG)

Abstract

This paper develops a framework for analyzing the impact of exchange rate uncertainty on the Law of One Price. Using the prices of very disaggregated, homogeneous products in a very open economy, Chile, where no institutions exist for hedging exchange risk, it then tests the model in a Bi-variate GARCH in mean context. Little evidence is found that short run exchange rate uncertainty constitutes a barrier to goods arbitrage.

JEL Classification: F10, F30, F14

Suggested Citation

Maloney, William F., Exchange Rate Uncertainty and the Law of One Price. REVIEW OF INTERNATIONAL ECONOMICS, Available at SSRN: https://ssrn.com/abstract=8684

William F. Maloney (Contact Author)

World Bank - Poverty and Economic Management Unit ( email )

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IZA Institute of Labor Economics

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World Bank - Development Research Group (DECRG)

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