Borderplex menu evidence for the law of one price: a convergence approach

Abstract

A convergence approach is utilized to examine deviations from the law of one price. Sample data are menu prices for eight identical products sold by international restaurant franchises in Mexico and the United States. The results suggest mean reverting behaviour in real exchange rate movements in response to recent information.

Inequality convergence in a panel of states

“…Finally, following Bao et al [2], we calculate the adjustment speed as presented in Eq. 3 asα = τβ + 1.…”

“…Please see Bénabou[6] and Ravallion[15] for cross-country studies; Ezcurra and Pascual[8] and Tselios[16] for regional studies; and Panizza[13], Goerlich and Mas[10] and Gomes[11] for withincountry studies 2. The description in this empirical section follows closely that of Bao and Dhongde[1].…”