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Unbiased Estimation of the Half-Life to Price Index Convergence among US Cities

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  • Hiranya K. Nath

    (Department of Economics and International Business, Sam Houston State University)

  • Jayanta Sarkar

    (Department of Economics and Finance, Louisiana Tech University)

Abstract

Cecchetti et al. (2002) estimate the half-life to price index convergence among U.S. cities to be approximately nine years. Although they correct for the small-sample bias in their panel estimate of the half-life, they do not adjust for biases that may potentially arise due to heterogeneity in the dynamic behavior of prices across cities, and time aggregation of price indices. This paper finds no evidence of significant heterogeneity in the dynamics of prices in different cities. However, corrected for the combined small-sample and time aggregation bias, the panel estimate of the half-life is found to be about seven years – two years shorter than the previous estimate.

Suggested Citation

  • Hiranya K. Nath & Jayanta Sarkar, 2007. "Unbiased Estimation of the Half-Life to Price Index Convergence among US Cities," Working Papers 0703, Sam Houston State University, Department of Economics and International Business.
    • Handle: RePEc:shs:wpaper:0703
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    References listed on IDEAS

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    1. Josep LluIs Carrion-I-Silvestre & Tomas Del Barrio & Enrique Lopez-Bazo, 2004. "Evidence on the purchasing power parity in a panel of cities," Applied Economics, Taylor & Francis Journals, vol. 36(9), pages 961-966.
    2. Stephen G. Cecchetti & Nelson C. Mark & Robert J. Sonora, 2002. "Price Index Convergence Among United States Cities," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 43(4), pages 1081-1099, November.
    3. Choi, Chi-Young & Mark, Nelson C. & Sul, Donggyu, 2006. "Unbiased Estimation of the Half-Life to PPP Convergence in Panel Data," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(4), pages 921-938, June.
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    7. David C. Parsley & Shang-Jin Wei, 1996. "Convergence to the Law of One Price Without Trade Barriers or Currency Fluctuations," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 111(4), pages 1211-1236.
    8. Chen, L. L. & Devereux, J., 2003. "What can US city price data tell us about purchasing power parity?," Journal of International Money and Finance, Elsevier, vol. 22(2), pages 213-222, April.
    9. Robert J. Sonora, 2005. "City CPI Convergence in Mexico," Review of Development Economics, Wiley Blackwell, vol. 9(3), pages 359-367, August.
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    Cited by:

    1. Christina Christou & Juncal Cunado & Rangan Gupta, 2019. "Price Convergence Patterns across U.S. States," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 66(2), pages 187-201.
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    3. Natalie D. Hegwood & Hiranya K. Nath, 2014. "Real exchange rate dynamics: Evidence from India," Economic Analysis and Policy, Elsevier, vol. 44(4), pages 396-404.
    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. Abdel-Baki Monal A., 2012. "The Impact of Basel III on Emerging Economies," Global Economy Journal, De Gruyter, vol. 12(2), pages 1-33, June.
    7. Barman, Hemanta & Dutta, Mrinal Kanti & Nath, Hiranya K., 2018. "The telecommunications divide among Indian states," Telecommunications Policy, Elsevier, vol. 42(7), pages 530-551.
    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. Nagayasu, Jun, 2010. "Regional Inflation (Price) Behaviors: Heterogeneity and Convergence," MPRA Paper 25430, University Library of Munich, Germany.
    10. 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.
    11. Felipe S. Bastos & Elano F. Arruda & Rafael B. Barbosa & Roberto T. Ferreira, 2018. "Speed of Reversion to PPP with Structural Breaks for Brazilian Cities," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 10(4), pages 15-24, April.
    12. Nagayasu, Jun, 2011. "Heterogeneity and convergence of regional inflation (prices)," Journal of Macroeconomics, Elsevier, vol. 33(4), pages 711-723.
    13. Woo, Kai-Yin & Lee, Shu-Kam & Chan, Alan, 2014. "Non-linear adjustments to intranational PPP," Journal of Macroeconomics, Elsevier, vol. 40(C), pages 360-371.
    14. Chmelarova, Viera & Nath, Hiranya K., 2010. "Relative price convergence among US cities: Does the choice of numeraire city matter?," Journal of Macroeconomics, Elsevier, vol. 32(1), pages 405-414, March.

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