Price Index Convergence Among United States Cities*

2002/11/01 by Stephen G. Cecchetti, Nelson C. Mark, Robert J. Sonora · 292 citations
Economics, Econometrics and Finance · #Consumer price index (South Africa) #Convergence (economics) #Differential (mechanical device) #Econometrics #Economic Growth and Productivity #Economic theories and models #Economics #Index (typography) #Macroeconomics #Mid price #Monetary Policy and Economic Impact #Monetary economics #Monetary policy #Panel data #Price index #Price level #Producer price index #Relative price #Wholesale price index

paper · doi:10.1111/1468-2354.t01-1-00049

published in International Economic Review 43(4), 1081-1099 (Wiley)

openalex publication_date 2002/11/01 · openalex created_date 2025/10/10 · openalex updated_date 2026/07/25

Abstract

We study the dynamics of price indices for major U.S. cities using panel econometric methods and find that relative price levels among cities mean revert at an exceptionally slow rate. In a panel of 19 cities from 1918 to 1995, we estimate the half‐life of convergence to be approximately nine years. The surprisingly slow rate of convergence can be explained by a combination of the presence of transportation costs, differential speeds of adjustment to small and large shocks, and the inclusion of nontraded goods prices in the overall price index.

Citations

• Biases in Dynamic Models with Fixed Effects
• Expectations and Exchange Rate Dynamics
• The overvaluation of purchasing power parity

Cited by

• A Short History of Price Level Convergence in Europe
• Unbiased Estimation of the Half‐Life to Price Index Convergence among U.S. Cities
• The Law of One Price: Evidence from the Transitional Economy of China
• Do European cities converge in life satisfaction?
• Price-level convergence: New evidence from U.S. cities
• Market integration and convergence to the Law of One Price: evidence from the European car market
• Mind the gap: city-level inflation synchronization. [europepmc]

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