Price setting, imperfect information and the law of one price

Article Abstract:

The effects of a flexible exchange rate system on deviations from the law of one price are evaluated using a two-country model. It has been determined that menu costs and imperfect information can produce short-run losses of the law of one price. If price changes are costly, and realand nominal variances are similar provided that financial signals are low, firms would not change prices in domestic and foreign currency. As changes in exchange rates occur, export prices are more likely to be affected although it does not adjust enough to meet the law of one price.

Appreciation, Macroeconomics

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Deflating the productivity norm

Article Abstract:

The 'productivity norm' states that prices fall as productivity increases and rises and productivity decreases. A critical analysis of the concept is done by comparing it with price-level stability. Some of the problems associated with the productivity norm include its capability of making the price level uncertain, discouraging productivity growth and raising the costs of adjusting prices. The analysis casts doubt on the capability of the productivity norm to stabilize real output than would price stability.

Industrial productivity

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Purchasing power parity in the major EMS countries: the role of price and exchange rate adjustment

Article Abstract:

A study was conducted to examine the effect of the European Monetary System (EMS) on real exchange rates. The study focused on the EMS impact on stability for France, Germany and Italy. Results show that purchasing power parity (PPP) was established only after the advent of the EMS. A PPP relationship between France and Germany is conditioned by exchange rate dynamics, while a similar relationship between Italy and Germany is influenced by nominal exchange rates and local variations of the inflation rate.

Economic aspects, European Monetary System, Purchasing power

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