Structural Breaks and Relative Price Convergence among U.S. Cities

Hiranya Nath and Natalie Hegwood ()
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Natalie Hegwood: Department of Economics and International Business, Sam Houston State University

No 1204, Working Papers from Sam Houston State University, Department of Economics and International Business

Abstract: This paper examines price index convergence among U. S. cities by applying panel unit root test procedures that allow for structural breaks to annual CPI data between 1918 and 2010 for 17 major cities. With an endogenously determined single break in 1985, and two breaks in 1943 and 1990 respectively, the test results provide overwhelming evidence of convergence of relative prices across cities, which is consistent with the existing literature. Most importantly, this study finds that the speed of convergence with structural break(s) is much faster than that reported by previous panel studies with no structural break. Furthermore, correcting for small-sample bias (the so-called “Nickell Bias”) and time aggregation bias generates a half-life of 2.8 years with two breaks, which is 74% shorter than the half-life estimate with no structural break and no bias correction. These results highlight the importance of structural break(s) and bias correction in obtaining reasonable panel estimates of the half-life to relative price convergence among U. S. cities.

Date: 2012-08
New Economics Papers: this item is included in nep-geo and nep-ure
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Citations: View citations in EconPapers (2)

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Related works:
Journal Article: Structural breaks and relative price convergence among US cities (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:shs:wpaper:1204

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