Testing integration in main European paper markets under floating and fixed exchange rates

The law of the one price (LOP) was examined in the main European markets for lightweight coated paper (LWC paper) and uncoated wood-free paper (office paper) using monthly data for the period 1992–2005. The study focused on whether floating and fixed exchange rates impacted on the uniformity of price linkages between the main markets. Bivariate cointegration analysis between 12 pairs of paper prices largely indicated uniform price behaviour between the UK, France and Germany in both commodity groups. Although there was slight indication of the extent of market integration becoming stronger after European currency union, our results were not able to strongly distinguish the floating and fixed exchange rate regimes. Despite the different end-use sectors of the LWC paper used by the publication industry and fine paper, which is dominantly for office use, the cointegration test results did not indicate behavioural differences between the two paper grades.