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The law of one price: a test based on prices for selected inputs in New Zealand agriculture

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  • S.B. Delpachitra
  • R.L. St Hill

Abstract

The law of one price (LOOP) is an essential foundation of both the pure theory of trade and monetary theory. Strictly speaking, the law relates to prices of individual commodities. However, empirical tests of LOOP have often relied on aggregated data. In this paper, a model is derived and estimated using price data for 15 selected inputs in New Zealand agriculture. The results offer no support for the LOOP in the short run, and the results for the long run are mixed. It may be inappropriate, therefore, to assume that the LOOP holds generally in modelling exercises, particularly when models are used for policy purposes.

Suggested Citation

  • S.B. Delpachitra & R.L. St Hill, 1994. "The law of one price: a test based on prices for selected inputs in New Zealand agriculture," Agricultural Economics, International Association of Agricultural Economists, vol. 10(3), pages 297-305, May.
  • Handle: RePEc:bla:agecon:v:10:y:1994:i:3:p:297-305
    DOI: 10.1111/j.1574-0862.1994.tb00310.x
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    Cited by:

    1. Ralph Bierlen & Eric J. Wailes & Gail L. Cramer, 1998. "Unilateral reforms, trade blocs, and law of one price: MERCOSUR rice markets," Agribusiness, John Wiley & Sons, Ltd., vol. 14(3), pages 183-198.
    2. Nga, Nguyen Thi Duong & Lantican, Flordeliza A., 2009. "Spatial Integration of Rice Markets in Vietnam," Asian Journal of Agriculture and Development, Southeast Asian Regional Center for Graduate Study and Research in Agriculture (SEARCA), vol. 6(1), pages 1-16, June.
    3. Nanang, David M., 2000. "A multivariate cointegration test of the law of one price for Canadian softwood lumber markets," Forest Policy and Economics, Elsevier, vol. 1(3-4), pages 347-355, December.

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