This paper analyzes the market integration process of nominal prices, develops a model to analyze market integration, and presents a test of increasing market integration. A distinction is made between the economic concepts of price conver- gence in mean and variance. When both types of convergence occur, prices are said to converge in distribution. We present concepts and definitions related to the market integration process, link these to price convergence in distribution, argue that the Law of One Price is not a sufficient condition for market integration, and present a test of price convergence in distribution. We apply our methodology to two different cases, namely the integration of: i) the inland grains market in 19th Century USA, and ii) the Eurozone long-term bonds market after the euro entered circulation.

Additional Metadata
Keywords regional and global markets, integration, asymptotic price convergence, mean, variance
JEL Time-Series Models; Dynamic Quantile Regressions (jel C22), Time-Series Models; Dynamic Quantile Regressions (jel C32), Transport, International and Domestic Trade, Energy, Technology, and Other Services: General, International, or Comparative (jel N70), Economic Integration (jel F15)
Persistent URL hdl.handle.net/1765/79213
Series Econometric Institute Research Papers
Citation
García-Hiernaux, A, Guerrero, D.E, & McAleer, M.J. (2015). Market Integration Dynamics and Asymptotic Price Convergence in Distribution (No. EI2015-30). Econometric Institute Research Papers. Retrieved from http://hdl.handle.net/1765/79213