IMF Working Papers

The Law of One Price Over 700 Years

By Kenneth Rogoff, Kenneth Froot, Michael Kim

November 1, 2001

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Kenneth Rogoff, Kenneth Froot, and Michael Kim. The Law of One Price Over 700 Years, (USA: International Monetary Fund, 2001) accessed September 18, 2024
Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

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.

Subject: Agricultural commodities, Commodities, Commodity prices, Metal prices, Prices, Silver

Keywords: Agricultural commodities, Commodity price series, Commodity prices, Europe, Exchange rates, Metal prices, Price deviation, Price differential, Price movement, Price trend, Purchasing power parity, Silver, Simple average, Standard deviation, Standard error, Time series, WP

Publication Details

  • Pages:

    43

  • Volume:

    ---

  • DOI:

    ---

  • Issue:

    ---

  • Series:

    Working Paper No. 2001/174

  • Stock No:

    WPIEA1742001

  • ISBN:

    9781451858693

  • ISSN:

    1018-5941