Domestic Market Integration and the Law of One Price in Brazil
September 29, 2015
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Summary
This paper presents the first assessment domestic market integration in Brazil using the law of one price. The law of one price is tested using two panel unit root methodologies and a unique data set comprising price indices for 51 products across 11 metro-areas. We find that the law of one price holds for most tradable products and, not surprisingly, non-tradable products are found to be less likely to satisfy the law of one price. While these findings are consistent with evidence found for other countries, price convergence occurs very slowly in Brazil, suggesting relatively limited domestic market integration.
Subject: Price indexes, Prices
Keywords: ADF coefficient, Domestic Market Integration, Law of One Price, LLC framework, market integration, null hypothesis, Panel Cointegration, price convergence, price deviation, Price indexes, product price, WP
Pages:
11
Volume:
2015
DOI:
Issue:
213
Series:
Working Paper No. 2015/213
Stock No:
WPIEA2015213
ISBN:
9781513509969
ISSN:
1018-5941
