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The Law of One Price in the North American Softwood Lumber Markets

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Abstract:

The existence of the Law of One Price (LOP) in the North American (10 regional) markets for aggregate softwood lumber and homogeneous softwood lumber products is tested using the Johansen co-integration test and monthly price data for the Softwood Lumber Agreement (SLA) (1996–2001) period and the post-SLA (2001–2004) period. For the aggregate softwood lumber market, the LOP exists neither in the North American aggregate market nor in any combination of one regional market of Canada and all the five regional markets of the United States, nor in one regional market of the United States and all five regional markets of Canada; however, some of the regional markets are co-integrated. The regional markets of homogeneous softwood products in the two countries are co-integrated during both the SLA and post-SLA period. Further studies are essential to understand the difference between the aggregated and homogeneous softwood products market co-integration and to develop a comprehensive and comparative perspective of the Canadian and the US softwood lumber markets.

Keywords: Co-integration; Johansen multivariate co-integration test; market integration; softwood lumber; the Law of One Price; trade dispute

Document Type: Research Article

Affiliations: Shashi Kant, Faculty of Forestry, University of Toronto, 33 Willcocks Street, Toronto, Ontario M5S 3B3, Canada—Phone: (416) 978-6196; shashi.kant@utoronto.ca., Fax: (416) 978-3834

Publication date: August 1, 2006

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