IDEAS home Printed from https://ideas.repec.org/p/diw/diwwpp/dp754.html
   My bibliography  Save this paper

Do Regional Price Levels Converge?: Paneleconometric Evidence Based on German Districts

Author

Listed:
  • Christian Dreger
  • Reinhold Kosfeld

Abstract

We investigate price index convergence on the base of regional data for 439 German districts. Prices refer to the overall consumer price index as well as to the index without housing prices. To increase the efficiency of the testing framework, a panel unit root analysis is performed, where cross section dependencies are taken into account. The tests indicate a lack of regional price convergence. While the idiosyncratic component of price differentials is mostly stationary, their common component is driven by a unit root. The results are very similar for the overall price index and the index without housing prices, and for the Western and Eastern part of the German economy. Obviously the elimination of housing prices is not sufficient to obtain a price index where tradable products dominate. One rationale of our findings is the persistent west-east divide in consumer prices. A second argument is related to the persistence of the price gradient between urban and rural regions.

Suggested Citation

  • Christian Dreger & Reinhold Kosfeld, 2007. "Do Regional Price Levels Converge?: Paneleconometric Evidence Based on German Districts," Discussion Papers of DIW Berlin 754, DIW Berlin, German Institute for Economic Research.
  • Handle: RePEc:diw:diwwpp:dp754
    as

    Download full text from publisher

    File URL: http://www.diw.de/documents/publikationen/73/diw_01.c.77638.de/dp754.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. Jushan Bai & Serena Ng, 2002. "Determining the Number of Factors in Approximate Factor Models," Econometrica, Econometric Society, vol. 70(1), pages 191-221, January.
    2. Christian Gengenbach & Franz C. Palm & Jean-Pierre Urbain, 2010. "Panel Unit Root Tests in the Presence of Cross-Sectional Dependencies: Comparison and Implications for Modelling," Econometric Reviews, Taylor & Francis Journals, vol. 29(2), pages 111-145, April.
    3. Engel, Charles & Rogers, John H, 2001. "Violating the Law of One Price: Should We Make a Federal Case Out of It?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 33(1), pages 1-15, February.
    4. M. Hashem Pesaran, 2007. "A simple panel unit root test in the presence of cross-section dependence," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 22(2), pages 265-312.
    5. Jushan Bai & Serena Ng, 2004. "A PANIC Attack on Unit Roots and Cointegration," Econometrica, Econometric Society, vol. 72(4), pages 1127-1177, July.
    6. 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.
    7. Im, Kyung So & Pesaran, M. Hashem & Shin, Yongcheol, 2003. "Testing for unit roots in heterogeneous panels," Journal of Econometrics, Elsevier, vol. 115(1), pages 53-74, July.
    8. Durlauf, Steven N. & Quah, Danny T., 1999. "The new empirics of economic growth," Handbook of Macroeconomics,in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 4, pages 235-308 Elsevier.
    9. Culver, Sarah E. & Papell, David H., 1999. "Long-run purchasing power parity with short-run data: evidence with a null hypothesis of stationarity," Journal of International Money and Finance, Elsevier, vol. 18(5), pages 751-768, October.
    10. Stephen Cecchetti & Nelson C. Mark & Robert Sonora, 1998. "Price Level Convergence Among United States Cities: Lessons for the European Central Bank," Working Papers 32, Oesterreichische Nationalbank (Austrian Central Bank).
    11. Fabio Busetti & Silvia Fabiani & Andrew Harvey, 2006. "Convergence of Prices and Rates of Inflation," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 68(s1), pages 863-877, December.
    12. Reinhold Kosfeld & Hans-Friedrich Eckey & Jorgen Lauridsen, 2008. "Disparities in Prices and Income across German NUTS 3 Regions," Applied Economics Quarterly (formerly: Konjunkturpolitik), Duncker & Humblot, Berlin, vol. 54(2), pages 123-141.
    13. Levin, Andrew & Lin, Chien-Fu & James Chu, Chia-Shang, 2002. "Unit root tests in panel data: asymptotic and finite-sample properties," Journal of Econometrics, Elsevier, vol. 108(1), pages 1-24, May.
    14. Kosfeld, Reinhold & Eckey, Hans-Friedrich & Lauridsen, J├Şrgen, 2007. "Disparities in prices and income across German NUTS 3 regions," Volkswirtschaftliche Diskussionsbeitr├Ąge 93, University of Kassel, Faculty of Economics and Management.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Regional price differentials; price convergence; panel unit roots;

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • R10 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - General
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:diw:diwwpp:dp754. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Bibliothek). General contact details of provider: http://edirc.repec.org/data/diwbede.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.