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Intranational Price Convergence and Price Stickiness: Evidence from Denmark

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  • U. Michael Bergman
  • Niels Lynggård Hansen
  • Christian Heeb⊘ll

Abstract

We show that estimates of the half‐life of deviations from the law of one price are biased when their precision is not taken into account when aggregating data for different types of goods. Using a comprehensive dataset with monthly price data for 124 homogeneous products across regions in Denmark over the period 1997–2010, we find a large positive aggregation bias. On average, we find that the half‐life is 8.4 months when taking the bias into account, compared with 28.7 months when applying the standard method. The heterogeneity in the estimated half‐life can be explained by price stickiness, distance between regions, and whether the good is traded or non‐traded.

Suggested Citation

  • U. Michael Bergman & Niels Lynggård Hansen & Christian Heeb⊘ll, 2018. "Intranational Price Convergence and Price Stickiness: Evidence from Denmark," Scandinavian Journal of Economics, Wiley Blackwell, vol. 120(4), pages 1229-1259, October.
    • Handle: RePEc:bla:scandj:v:120:y:2018:i:4:p:1229-1259
    DOI: 10.1111/sjoe.12259
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    Cited by:

    1. Nan Li & Xunwen Zhao & Hailin Mu & Yimeng Li & Jingru Pang & Yuqing Jiang & Xin Jin & Zhenwei Pei, 2020. "Research on the Self-Repairing Model of Outliers in Energy Data Based on Regional Convergence," Energies, MDPI, vol. 13(18), pages 1-13, September.
    2. Luca Macedoni, 2021. "Has the Euro Shrunk the Band? Relative Purchasing Power Parity Convergence in a Currency Union," Scandinavian Journal of Economics, Wiley Blackwell, vol. 123(2), pages 593-620, April.

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