Abstract
The long-term validity of the law-of-one-price hypothesis is explored empirically in international markets for individual commodities. The data consist of 10 commodity groups: lead, maize, newsprint, rice, rubber, sugar, tin, wheat, wool, and zinc. The results provide broad support for the hypothesis: out of the 17 bivariate relationships investigated, the hypothesis is supported in 14 cases. The results also imply that two thirds of the deviations from the “law” are eliminated within one year, on average. Thus, at the commodity level, the adjustment speeds are found to be considerably faster than what has been found previously for aggregate price indices.
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Vataja, J. Should the Law of One Price be Pushed Away? Evidence from International Commodity Markets. Open Economies Review 11, 399–415 (2000). https://doi.org/10.1023/A:1008330727596
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DOI: https://doi.org/10.1023/A:1008330727596