TY  - JOUR
AU  - Froot,Kenneth A.
AU  - Kim,Michael
AU  - Rogoff,Kenneth
TI  - The Law of One Price Over 700 Years
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 5132
PY  - 1995
Y2  - May 1995
UR  - http://www.nber.org/papers/w5132
L1  - http://www.nber.org/papers/w5132.pdf
N1  - Author contact info:
Kenneth A. Froot
Graduate School of Business
Harvard University
Soldiers Field
Boston, MA 02163
Tel: 617/495-6677
Fax: 617/496-7357
E-Mail: kfroot@hbs.edu

Michael Kim
E-Mail: mhskim@yahoo.com

Kenneth S. Rogoff
Thomas D Cabot Professor of Public Policy
Economics Department
Harvard University
Littauer Center 216
Cambridge, MA 02138-3001
Tel: 617-495-4022
Fax: 617/495-7730
E-Mail: krogoff@harvard.edu
AB  - This paper examines annual commodity price data from England and Holland over a span of seven centuries.  Our data set incorporates transactions prices on 8 commodities: barley, butter, cheese, eggs, oats, peas, silver, wheat as well as pound/shilling nominal exchange rates going back, in some cases, to 1273.  We find that the volatility and persistence of deviations from the law of one price have been remarkably stable over time.  LOP deviations are highly correlated across commodities (especially at annual horizons) and, for most pairwise comparisons in most centuries, at least as volatile as relative prices across different goods within the same country.  Our analysis challenges the conventional view that the modern floating exchange rate experience is exceptional in terms of the behavior of relative (exchange-rate adjusted) prices across countries.
ER  -