Domestic Market Integration and the Law of One Price in Brazil

September 29, 2015

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Format: Chicago

Carlos Góes, and Troy D Matheson. Domestic Market Integration and the Law of One Price in Brazil, (USA: International Monetary Fund, 2015) accessed September 27, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

This paper presents the first assessment domestic market integration in Brazil using the law of one price. The law of one price is tested using two panel unit root methodologies and a unique data set comprising price indices for 51 products across 11 metro-areas. We find that the law of one price holds for most tradable products and, not surprisingly, non-tradable products are found to be less likely to satisfy the law of one price. While these findings are consistent with evidence found for other countries, price convergence occurs very slowly in Brazil, suggesting relatively limited domestic market integration.

Subject: Price indexes, Prices

Keywords: ADF coefficient, Domestic Market Integration, Law of One Price, LLC framework, Market integration, Null hypothesis, Panel Cointegration, Price convergence, Price deviation, Price indexes, Product price, WP

Publication Details

Pages:

11
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2015/213
Stock No:

WPIEA2015213
ISBN:

9781513509969
ISSN:

1018-5941

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