TY  - JOUR
AU  - Cecchetti,Stephen G.
AU  - Mark,Nelson C.
AU  - Sonora,Robert J.
TI  - Price Level Convergence Among United States Cities: Lessons for the European Central Bank
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 7681
PY  - 2000
Y2  - May 2000
UR  - http://www.nber.org/papers/w7681
L1  - http://www.nber.org/papers/w7681.pdf
N1  - Author contact info:
Stephen G. Cecchetti
Monetary and Economic Department
Bank for International Settlements
Centralbahnplatz 2
4002 Basel
SWITZERLAND
Tel: +41 61 280 8350
Fax: +41 61 280 9113
E-Mail: stephen.cecchetti@bis.org

Nelson Mark
Department of Economics and Econometrics
University of Notre Dame
Notre Dame, IN  46556
Tel: 574/631-0518
Fax: 574/631-4783
E-Mail: nmark@nd.edu
AB  - 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.  These estimates provide an upper bound on speed of convergence that participants in European Monetary Union are likely to experience. 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 non-traded good prices in the overall price index.
ER  -