Arghyrou, Michael, Gregoriou, Andros and Pourpourides, Panayiotis
2009.
A new solution to the purchasing power parity puzzles? Riskaversion, exchange rate uncertainty and the law of one price: insights from the market of online air-travel tickets.
[Working Paper].
Cardiff Economics Working Papers,
Cardiff:
Cardiff University.
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Abstract
We argue that even in perfectly frictionless markets risk aversion driven by exchange rate uncertainty may cause a wedge between the domestic and foreign price of a totally homogeneous good. We test our hypothesis using a natural experiment based on a unique micro-data set from a market with minimum imperfections. The empirical findings validate our hypothesis, as accounting for exchange rate uncertainty we are able to explain a substantial proportion of deviations from the law of one price. Overall, our analysis suggests the possibility of a new solution to the purchasing power parity puzzles.
Item Type: |
Monograph
(Working Paper)
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Date Type: |
Publication |
Status: |
Published |
Schools: |
Business (Including Economics) |
Subjects: |
H Social Sciences > HB Economic Theory |
Publisher: |
Cardiff University |
Date of First Compliant Deposit: |
30 March 2016 |
Last Modified: |
23 Dec 2017 21:16 |
URI: |
http://orca.cf.ac.uk/id/eprint/77815 |
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