The crisis has been a stark reminder of how interconnected the world financial system and economy has become. Financial sectors have also become more interconnected. While most comment has concentrated on the role that the Lehman bankruptcy played in worsening the crisis, we should not forget that the events surrounding AIG also had an impact on global financial markets.
Despite the large and persistent price gaps that are frequently observed between Canadian and foreign prices at the aggregate level, more detailed work suggests that deviations from the law of one price and purchasing-power parity are not as large or as persistent as many believe.