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The impact of climate on the law of one price: A test using North American food prices from the 1920s

Author

Listed:
  • Bruce Cater
  • Byron Lew

Abstract

Using grocery price data for over 100 urban locations across the US and Canada from the 1920s, we show that deviations from the law of one price (LOP) were strongly related to climate differences. The effect of climate has a large impact on the elasticity of deviations from LOP with respect to distance, while having no impact on the border effect. We then test a counterfactual to show that the relationship between deviations from LOP and temperature does not hold when historical temperature data are replaced with contemporary. This is evidence that climate impacts production.

Suggested Citation

  • Bruce Cater & Byron Lew, 2018. "The impact of climate on the law of one price: A test using North American food prices from the 1920s," Canadian Journal of Economics, Canadian Economics Association, vol. 51(4), pages 1191-1220, November.
    • Handle: RePEc:cje:issued:v:51:y:2018:i:4:p:1191-1220
    DOI: 10.1111/caje.12357
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    Cited by:

    1. Crucini, Mario J. & Yilmazkuday, Hakan, 2014. "Understanding long-run price dispersion," Journal of Monetary Economics, Elsevier, vol. 66(C), pages 226-240.

    More about this item

    JEL classification:

    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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