Price level convergence across cities? Evidence from panel unit root tests

Ho-Chuan Huang (), Pei-Chien Lin and Chih-Chuan Yeh

Applied Economics Letters, 2011, vol. 18, issue 1, 87-93

Abstract: This article empirically tests for convergence in Consumer Price Indices (CPIs) across 17 major cities in the United States over the period 1918 to 2008. Although the conventional panel unit root tests generally fail to reject the null hypothesis of nonstationarity, the panel LM tests of Im et al. (2005), by taking the presence of structural breaks into account, find overwhelming evidence in support of the hypothesis of price convergence The main finding is confirmed even when we consider both the structural changes and the cross-sectional dependence by using the recent advanced panel unit root approach of Bai and Carrion-i-Silvestre (2009).

Date: 2011
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DOI: 10.1080/13504850903425157

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