Price-Level Convergence: New Evidence from U.S. Cities
8 Pages Posted: 26 May 2010 Last revised: 19 Dec 2011
Date Written: May 26, 2010
Abstract
This paper tests the bilateral price-level convergence among 52 U.S. cities at the good level. We employ a new approach which is free of problems that arise when using an arbitrary benchmark, cross-section dependence, and heterogeneity. We find quite strong evidence in favor of convergence with significantly quick rates. This finding is surprising as the estimated median half lives are far below the half lives found in the corresponding studies for the U.S.
Keywords: Convergence, Micro-Level Prices, PPP Puzzle
JEL Classification: E31, F41
Suggested Citation: Suggested Citation
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