The Welfare Costs of Deviations from the Law of One Price: An Empirical Investigation
نویسندگان
چکیده
We explore failures of the law of one price across European cities. We extend DevereuxEngel’s (1998) model of local-currency pricing by allowing transportation costs as an alternative explanation for failures of the law of one price. We discuss the welfare costs of law-of-one-price failures. Our empirical work finds that most of the failures of the law of one price in Europe are attributable to local-currency pricing, but transportation costs and other barriers are also important explanatory factors. First Draft: June 3, 1999 Charles Engel Department of Economics University of Washington Seattle, WA 98195-3330 E-mail: [email protected] John H. Rogers International Finance Division Stop 22 Board of Governors of the Federal Reserve System Washington, DC 20551 E-mail: [email protected]
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