Price Level Convergence Among United States Cities: Lessons for the European Central Bank

Stephen Cecchetti, Nelson Mark and Robert Sonora

No 7681, NBER Working Papers from National Bureau of Economic Research, Inc

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. These estimates provide an upper bound on speed of convergence that participants in European Monetary Union are likely to experience. 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 non-traded good prices in the overall price index.

JEL-codes: F31 F37 (search for similar items in EconPapers)
Date: 2000-05
New Economics Papers: this item is included in nep-eec and nep-mon
Note: ME
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (70)

Published as Cecchetti, Stephen G., Nelson C. Mark and Robert J. Sonora. "Price Index Convergence Among United States Cities," International Economic Review, 2002, v43(4,Nov), 1081-1099.

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Related works:
Working Paper: Price Level Convergence Among United States Cities: Lessons for the European Central Bank (1999)
Working Paper: Price Level Convergence Among United States Cities: Lessons for the European Central Bank (1998)
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