One Market, One Money, One Price?
by Nigel F.B. Allingtona, Paul A. Kattumanb and Florian A. Waldmannc
The introduction of the euro was intended to integrate markets
within Europe further, after the implementation of the
1992 Single Market Project. We examine the extent to which
this objective has been achieved, by examining the degree of
price dispersion between countries in the euro zone, compared
to a control group of EU countries outside the euro zone. We
also establish the role of exchange rate risk in hampering arbitrage
by estimating the euro effect for subgroups within the
euro zone, utilizing differences among EU countries in participation
in the Exchange Rate Mechanism. Our results, in contrast
with previous empirical research, suggest robustly that
the euro has had a significant integrating effect.
JEL Codes: E31, E42, F01.
Full article (PDF, 43 pages 348 kb)
a Gonville and Caius College, University of Cambridge, and Cardiff University
b Judge Business School and Corpus Christi College, University of Cambridge
c Citigroup Global Markets, London and Wolfson College, University of Cambridge