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Attila Ratfai
''How Fast Is Convergence to the Law of One Price? Very''
( 2006, Vol. 6 No.10 )
In a highly disaggregated product-level sample of monthly frequency prices, the degree of persistence in cross-location price differentials is estimated. When location specific effects are accounted for in measuring price differentials, the median half-life of the conditional convergence to the Law of One Price is about four months. The degree of persistence is related to the mean and volatility in product price inflation. The equilibrium level of price differentials depends on the relative size of the location, but not on its geographical position.
E3 - Prices, Business Fluctuations, and Cycles: General (includes Measurement and Data)
Manuscript Received : Jul 27 2006 Manuscript Accepted : Sep 08 2006

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