Price index convergence among United States cities

Stephen G. Cecchetti, Nelson C. Mark, Robert J. Sonora

Research output: Contribution to journalArticlepeer-review

162 Scopus citations

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.

Original languageEnglish
Pages (from-to)1081-1099
Number of pages19
JournalInternational Economic Review
Volume43
Issue number4
DOIs
StatePublished - Nov 2002

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