The Law of One Price Over 700 Years

43 Pages Posted: 3 Feb 2006

See all articles by Kenneth Rogoff

Kenneth Rogoff

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

Kenneth Froot

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

Multiple version iconThere are 3 versions of this paper

Date Written: November 2001

Abstract

This paper examines annual commodity price data from England and Holland over a span of seven centuries. Our data incorporates transaction prices on seven commodities: barley, butter, cheese, oats, peas, silver, and wheat, as well as pound/shilling nominal exchange rates going back, in some cases, to 1273. We find that the magnitude, volatility, and persistence of deviations from the law of one price have not declined by as much as one might expect. We find this despite lower transport costs, reduced trade protection, and fewer wars and plagues in the modern era. Our analysis is consistent with growing evidence that goods-market arbitrage remains highly imperfect, even today.

Keywords: purchasing power parity exchange rates

JEL Classification: F3 F31

Suggested Citation

Rogoff, Kenneth S. and Froot, Kenneth, The Law of One Price Over 700 Years (November 2001). IMF Working Paper, Vol. , pp. 1-43, 2001. Available at SSRN: https://ssrn.com/abstract=880226

Kenneth S. Rogoff (Contact Author)

Harvard University - Department of Economics ( email )

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Kenneth Froot

National Bureau of Economic Research (NBER) ( email )

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Harvard Business School ( email )

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