Arghyrou, Michael G. Gregoriou, Andros Pourpourides, Panayiotis M.
Year of Publication:
Cardiff Economics Working Papers E2009/23
Arghyrou, Gregoriou and Pourpourides (2009) argue that exchange rate uncertainty causes deviations from the law of one price. We test this hypothesis on aggregate data from the G7-area. We find that exchange rate uncertainty explains to a significant degree deviations from Purchasing Power Parity.