TY  - JOUR
AU  - Parsley,David C.
AU  - Wei,Shang-Jin
TI  - Convergence to the Law of One Price Without Trade Barriers or Currency Fluctuations
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 5654
PY  - 1996
Y2  - July 1996
UR  - http://www.nber.org/papers/w5654
L1  - http://www.nber.org/papers/w5654.pdf
N1  - Author contact info:
david parsley
Owen Graduate School
Vanderbilt University
Nashville, TN  37203
Tel: 615.322.0649
Fax: 615.343.7177
E-Mail: david.parsley@vanderbilt.edu

Shang-Jin Wei
Graduate School of Business
Columbia University
Uris Hall 619
3022 Broadway
New York, NY 10027-6902
Tel: 212/854-9139
E-Mail: shangjin.wei@columbia.edu
AB  - Using a panel of 51 prices from 48 cities in the United States we provide an upper bound estimate of the rate of convergence to Purchasing Power Parity.  We find convergence rates substantially higher than typically found in cross-country data.  We investigate some potentially serious biases induced by i.i.d. measurement errors in the data, and find our estimates to be robust to these potential biases.  We also present evidence that convergence occurs faster for larger price differences. Finally, we find that rates of convergence are slower for cities farther apart. However, our estimates suggest that distance alone can only account for a small portion of the much slower convergence rates across national borders.
ER  -