Price Index Convergence Among United States Cities

Stephen Cecchetti, Nelson Mark and Robert Sonora

International Economic Review, 2002, vol. 43, issue 4, 1081-1099

Abstract: We study the dynamics of price indices for major U.S. cities using panel econometric methods and find that relative price levels among cities mean revert at an exceptionally slow rate. In a panel of 19 cities from 1918 to 1995, we estimate the half-life of convergence to be approximately nine years. The surprisingly slow rate of convergence can be explained by a combination of the presence of transportation costs, differential speeds of adjustment to small and large shocks, and the inclusion of nontraded goods prices in the overall price index. Copyright 2002 by the Economics Department of the University of Pennsylvania and Osaka University Institute of Social and Economic Research Association

Date: 2002
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