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Law of One Price in International Commodity Markets: A Fractional Cointegration Analysis

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  • Samarendu Mohanty
  • Darnell B. Smith
  • E. Wesley F. Peterson
  • William H. Meyers

Abstract

The Law of One Price (LOP) is an important component of most, if not all, international trade models because this assumption allows researchers to use a single representative price for all regions. This paper examines the long-run LOP for international commodity prices using a generalized notion of cointegration called fractional cointegration. This analysis is applied to nine pairs of price series, supporting the existence of LOP in eight cases.

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  • Samarendu Mohanty & Darnell B. Smith & E. Wesley F. Peterson & William H. Meyers, 1996. "Law of One Price in International Commodity Markets: A Fractional Cointegration Analysis," Center for Agricultural and Rural Development (CARD) Publications 96-wp155, Center for Agricultural and Rural Development (CARD) at Iowa State University.
    • Handle: RePEc:ias:cpaper:96-wp155
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    Cited by:

    1. Ijambo, Bertha Deshimona, 2017. "An econometric analysis of spatial market integration and price formation in the Namibian sheep industry," Research Theses 334744, Collaborative Masters Program in Agricultural and Applied Economics.

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