TY - JOUR
T1 - A proposition on short-run departures from the law-of-one-price. Unanticipated inflation, relative-price dispersion, and commodity arbitrage
AU - Blejer, Mario I.
AU - Hillman, Arye L.
PY - 1982
Y1 - 1982
N2 - This paper proposes an explanation of short-run departures from the law-of-one-price based on the characteristics of the inflationary process and changes in the distribution of relative prices. Unexpected inflation gives rise to volatility of relative prices. The more unexpected (and hence uneven) the rate of inflation, the greater the difficulty in discerning from a given structure of relative prices commodity-arbitrage opportunities which may be expected to persist and those transient opportunities which do not warrant a firm's incurring fixed costs of arbitrage. An illustration portrays a risk-averse firm confronting an international arbitrage opportunity.
AB - This paper proposes an explanation of short-run departures from the law-of-one-price based on the characteristics of the inflationary process and changes in the distribution of relative prices. Unexpected inflation gives rise to volatility of relative prices. The more unexpected (and hence uneven) the rate of inflation, the greater the difficulty in discerning from a given structure of relative prices commodity-arbitrage opportunities which may be expected to persist and those transient opportunities which do not warrant a firm's incurring fixed costs of arbitrage. An illustration portrays a risk-averse firm confronting an international arbitrage opportunity.
UR - http://www.scopus.com/inward/record.url?scp=0344872282&partnerID=8YFLogxK
U2 - 10.1016/0014-2921(82)90041-1
DO - 10.1016/0014-2921(82)90041-1
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AN - SCOPUS:0344872282
SN - 0014-2921
VL - 17
SP - 51
EP - 60
JO - European Economic Review
JF - European Economic Review
IS - 1
ER -