Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/264624 
Year of Publication: 
1998
Series/Report no.: 
Working Paper No. 32
Publisher: 
Oesterreichische Nationalbank (OeNB), Vienna
Abstract: 
We study the dynamics of price indices for major U.S. cities. Using panel econometric methods, we find that relative price levels among cities mean revert, but at a surprisingly slow rate. In a panel of 15 cities from 1918 to 1995, we estimate the half life of convergence to be approximately 9 years. The following hypotheses are investigated as explanations for the slow convergence: (i) Arbitrage impediments induced by transportation costs, and (ii) and the inclusion of nontraded goods prices in the overall price index as suggested by the Balassa-Samuelson hypothesis. Our estimates provide an upper bound on convergence rates that participants in European Monetary Union may experience.
Subjects: 
Purchasing power parity
Convergence
European Monetary Union
Document Type: 
Working Paper

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