Abstract
We analyze the effect of the business cycle on price dispersion in Europe. Five decades of price level dispersion data for Europe enable us to distinguish short-term influences from long-term influences like market integration. We find that at the business cycle frequency, price dispersion across EMU member countries over the 1960-2009 period is significantly lower during economic downturns. This confirms on a macroeconomic level the evidence from micro and survey studies that markets become more competitive with falling demand, reducing deviations from the Law of One Price. Our model replicates most of the major drops in price level dispersion during severe economic recessions of the early 1970s, 1980s and 1990s, as well as the small change during the recent financial crisis.
Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
