The space-time pattern of price waves

Abstract:

We investigate the way price fluctuations are transmitted between spatially separated markets. More specifically we show that the correlation patterns of wheat prices exhibit definite regularities some of which appear to be at variance with intuitive reasoning. Such patterns can be explained in the framework of a wave propagation model based on the so-called spatial arbitrage assumption. In 19th century France the velocity of price waves was of the order of 100 km/month. The economic implications of such an order of magnitude are discussed. In the concluding section we emphasize that what gives this problem its importance is its relative “simplicity”, a word for which we propose an operational definition.