THE LAW OF ONE PRICE REVISITED - NEW EVIDENCE ON THE BEHAVIOR OF INTERNATIONAL PRICES

This paper is an empirical investigation Of the long-run behavior of international prices at the microeconomic level. It analyzes the time-series behavior of a unique set of carefully matched, disaggregated export prices for manufactured goods from the U.S., Germany, and Japan over the period 1974-90. The results provide little evidence of a long-run linear relationship between global prices of similar export goods from different sources, casting doubts on the empirical relevance of the law of one price.