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City relative price convergence in the USA with structural break(s)

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  • Robert Sonora

Abstract

As in international tests of purchasing power parity, new more powerful univariate unit root tests have been successful in rejecting a unit root process in US city relative prices over the period 1918-1997. However, convergence rates calculated with these tests are at odds with theories of price convergence. This article addresses structural breaks that may be misinterpreted as nonstationary permanent stochastic process. Using unit root tests with structural breaks, we are able to reject a unit root process in the majority of US city relative prices over the entire sample period. Moreover, convergence rates fall to those more in line with theory.

Suggested Citation

  • Robert Sonora, 2009. "City relative price convergence in the USA with structural break(s)," Applied Economics Letters, Taylor & Francis Journals, vol. 16(9), pages 939-944.
    • Handle: RePEc:taf:apeclt:v:16:y:2009:i:9:p:939-944
    DOI: 10.1080/17446540802298035
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    Citations

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    Cited by:

    1. Sule Akkoyunlu & Boriss Siliverstovs, 2010. "Does the Law of One Price Hold in a High-Inflation Environment?," KOF Working papers 10-248, KOF Swiss Economic Institute, ETH Zurich.
    2. Domingo Rodríguez Benavides & Abigail Rodríguez Nava, 2019. "Convergencia de los precios locales en México: un enfoque de pruebas entre pares/Convergence of local prices in Mexico: A pairwise approach," Estudios Económicos, El Colegio de México, Centro de Estudios Económicos, vol. 34(2), pages 309-332.
    3. repec:qut:auncer:2013_01 is not listed on IDEAS
    4. Hegwood, Natalie D. & Nath, Hiranya K., 2013. "Structural breaks and relative price convergence among US cities," Journal of Macroeconomics, Elsevier, vol. 36(C), pages 150-160.
    5. Syed Basher & Josep Carrion-i-Silvestre, 2011. "Measuring persistence of U.S. city prices: new evidence from robust tests," Empirical Economics, Springer, vol. 41(3), pages 739-745, December.
    6. Sule Akkoyunlu & Boriss Siliverstovs, 2014. "Does the law of one price hold in a high-inflation environment? A tale of two cities in Turkey," Applied Economics, Taylor & Francis Journals, vol. 46(26), pages 3236-3245, September.
    7. Ikeno, Hidehiro, 2014. "Long-run analysis on convergence of Japanese local price levels: A pairwise approach," Economic Modelling, Elsevier, vol. 42(C), pages 390-397.
    8. Faik Bilgili, 2016. "City Price Convergence in Turkey with Structural Breaks," International Journal of Economics and Financial Issues, Econjournals, vol. 6(3), pages 933-941.
    9. Hiranya K. Nath & Jayanta Sarkar, 2014. "City Relative Price Dynamics in Australia: Are Structural Breaks Important?," The Economic Record, The Economic Society of Australia, vol. 90(288), pages 33-48, March.
    10. Ikeno, Hidehiro, 2014. "Pairwise tests of convergence of Japanese local price levels," International Review of Economics & Finance, Elsevier, vol. 31(C), pages 232-248.

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