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Exchange Rate Uncertainty and the Law of One Price

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  • Maloney, William F

Abstract

This paper develops a framework for analyzing the impact of exchange rate uncertainty on the Law of One Price. Using the prices of very disaggregated, homogeneous products in a very open economy, Chile, where no institutions exist for hedging exchange risk, it then tests the model in a bivariate GARCH in mean context. Little evidence is found that short-run exchange rate uncertainty constitutes a barrier to goods arbitrage. Copyright 1999 by Blackwell Publishing Ltd.

Suggested Citation

  • Maloney, William F, 1999. "Exchange Rate Uncertainty and the Law of One Price," Review of International Economics, Wiley Blackwell, vol. 7(2), pages 328-341, May.
    • Handle: RePEc:bla:reviec:v:7:y:1999:i:2:p:328-41
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    Cited by:

    1. Jeffrey Frankel & David Parsley & Shang-Jin Wei, 2012. "Slow Pass-through Around the World: A New Import for Developing Countries?," Open Economies Review, Springer, vol. 23(2), pages 213-251, April.
    2. Herrmann-Pillath Carsten, 2001. "A General Refutation of the Law of One Price as Empirical Hypothesis / Eine allgemeine Widerlegung des „Gesetzes des einheitlichen Preises“ als einer empirischen Hypothese," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 221(1), pages 45-67, February.
    3. Peter Lloyd, 2010. "Global Economic Integration," Pacific Economic Review, Wiley Blackwell, vol. 15(1), pages 71-86, February.
    4. Fajnzylber, Pablo & Maloney, William F. & Ribeiro, Eduardo, 2001. "Firm entry and exit, labor demand, and trade reform : evidence from Chile and Colombia," Policy Research Working Paper Series 2659, The World Bank.
    5. Xu, Miao & Orden, David, 2002. "Exchange Rate Effects On Canadian/U.S. Agricultural Prices," 2002 Annual meeting, July 28-31, Long Beach, CA 19886, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).

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