The Law of One Price of Central European Countries – Analysis of Feed Barley

P. Bubáková


No 2/2015, June
pp. 13-24

Bubáková P. (2015) "The Law of One Price of Central European Countries – Analysis of Feed Barley“, AGRIS on-line Papers in Economics and Informatics, Vol. 7, No. 2, pp. 13 – 24. ISSN 1804-1930

Abstract

The paper examines the validity of the Law of One Price (LOP) in the international market for feed barley among selected Central European markets, namely the Czech Republic, Germany, Austria, Slovakia, Poland and Hungary. Monthly prices over the period June 1995 to December 2012 are used. Each country pair is tested for cointegration, and the hypothesis of LOP is tested in the Vector Error Correction model. The results show that the LOP holds for the majority of markets. Cointegration was confirmed among all pairs of countries except for pairs with Slovakia. For cointegrated country pairs, the LOP holds for 8 out of 10 pairs at a 5 % level of significance. Germany has a dominant position within the investigated international trade and determines the prices of other countries. Austria is the second most dominant market. Countries of the original Visegrad group, namely the Czech Republic, Poland and Hungary, are characterized by simultaneous price relationships.

Keywords

Law of One Price, barley, European countries, Johansen test, Vector Error Correction model, price interdependence.

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