Spatial effects in a common trend model of US city-level CPI

Peter Burridge, Fabrizio Iacone and Štěpána Lazarová

Regional Science and Urban Economics, 2015, vol. 54, issue C, 87-98

Abstract: This paper studies relative movements in price indices of 17 US cities. We employ an unobserved common trend model where the trend can be stochastic or deterministic with possible breaks or other nonlinearities. To accommodate the spatial nature of the data we allow for spatially correlated short-run shocks. In this way, the speed of convergence to the equilibrium implied by the law of one price is estimated taking into account the effect of distances across cities. The parameters of the model are estimated using a generalized method of moments (GMM) method which incorporates moment conditions corresponding to a generalized least squares-like within estimator of regression parameters. We find a slow rate of convergence of the price levels and strong evidence of spatial effects.

Keywords: Common trend; General method of moments; Law of one price; Price index; Spatial correlation (search for similar items in EconPapers)
JEL-codes: C33 E31 R12 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0166046215000605
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:regeco:v:54:y:2015:i:c:p:87-98

DOI: 10.1016/j.regsciurbeco.2015.07.001

Access Statistics for this article

Regional Science and Urban Economics is currently edited by D.P McMillen and Y. Zenou

More articles in Regional Science and Urban Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().