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Anatomy of Regional Price Differentials: Evidence From Micro Price Data

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  • Sebastian Weinand
  • Ludwig von Auer

Abstract

Over the last three decades the supply of economic statistics has vastly improved. Unfortunately, statistics on regional price levels (sub- national purchasing power parities) have been exempt from this positive trend, even though they are indispensable for meaningful spatial comparisons of regional output, income, wages, productivity, standards of living, and poverty. To improve the situation, our paper demonstrates that a highly disaggregated and reliable regional price index can be compiled from data that already exist. We use the micro price data that have been collected for Germany’s Consumer Price Index in May 2016. For the computation we introduce a multi-stage version of the Country-Product-Dummy method. The unique quality of our price data set allows us to depart from previous spatial price comparisons and to compare only exactly identical products. We find that the price levels of the 402 counties and cities of Germany are largely driven by the cost of housing and to a much lesser degree by the prices of goods and services. The overall price level in the most expensive region, Munich, is about 27 percent higher than in the cheapest region. Our results also reveal strong spatial autocorrelation.

Suggested Citation

  • Sebastian Weinand & Ludwig von Auer, 2019. "Anatomy of Regional Price Differentials: Evidence From Micro Price Data," Working Paper Series of the German Council for Social and Economic Data 268, German Council for Social and Economic Data (RatSWD).
  • Handle: RePEc:rsw:rswwps:rswwps268
    DOI: 10.17620/02671.37
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    File URL: http://ratswd.de/dl/RatSWD_WP_268.pdf
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    References listed on IDEAS

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    1. repec:adr:anecst:y:2005:i:79-80:p:29 is not listed on IDEAS
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    3. Deaton, Angus, 1988. "Quality, Quantity, and Spatial Variation of Price," American Economic Review, American Economic Association, vol. 78(3), pages 418-430, June.
    4. Erwin Diewert, 2010. "Adjacent Period Dummy Variable Hedonic Regressions and Bilateral Index Number Theory," NBER Chapters,in: Contributions in Memory of Zvi Griliches, pages 759-786 National Bureau of Economic Research, Inc.
    5. Manisha Chakrabarty & Amita Majumder & Ranjan Ray, 2015. "Preferences, Spatial Prices and Inequality," Journal of Development Studies, Taylor & Francis Journals, vol. 51(11), pages 1488-1501, November.
    6. Jan Cadil & Petr Mazouch & Petr Musil & Jana Kramulova, 2014. "True regional purchasing power: evidence from the Czech Republic," Post-Communist Economies, Taylor & Francis Journals, vol. 26(2), pages 241-256, June.
    7. Deckers Thomas & Falk Armin & Schildberg-Hörisch Hannah, 2016. "Nominal or Real? The Impact of Regional Price Levels on Satisfaction with Life," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 16(3), pages 1337-1358, September.
    8. Dipankor Coondoo & Amita Majumder & Somnath Chattopadhyay, 2011. "Estimating Spatial Consumer Price Indices Through Engel Curve Analysis," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 57(1), pages 138-155, March.
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    10. Uwe Blien & Hermann Gartner & Heiko Stüber & Katja Wolf, 2009. "Regional price levels and the agglomeration wage differential in western Germany," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 43(1), pages 71-88, March.
    11. Bernhard Faller & Christoph Helbach, & Andreas Vater & Reiner Braun, 2009. "Möglichkeiten zur Bildung eines Regionalindex Wohnkosten unter Verwendung von Angebotsdaten," Research Notes of the German Council for Social and Economic Data 34, German Council for Social and Economic Data (RatSWD).
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    13. repec:adr:anecst:y:2005:i:79-80 is not listed on IDEAS
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    More about this item

    Keywords

    spatial price comparison; regional price index; PPP; CPD-method; hedonic regression; consumer price data;

    JEL classification:

    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
    • C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • O18 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Urban, Rural, Regional, and Transportation Analysis; Housing; Infrastructure
    • R10 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - General

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