19 Nov, Thur, 16:10-17:40

李志远 Li, Zhiyuan

复旦大学

Fudan University

International Liberalization and Intranational Deviations from the Law of One Price

Abstract：

Literature usually takes a bilateral perspective when studying the deviations from the Law of One Price (LOP). This paper shows that trade relation with a third party (or region) might be important in affecting the price deviations between two markets. We develop a simple open-economy model showing that international trade liberalization can reduce the volatility of deviations between cities with a country. We find strong supporting evidence using highly disaggregated monthly retail price data of China. The paper demonstrates that a non-bilateral perspective might be needed when studying the deviations from LOP under circumstances such as when the pair of markets experienced large changes in trade with a third country (or region).