We would like to thank the editor Pok-sang Lam, Don Freeman, and two anonymous referees for their helpful comments.
Unbiased Estimation of the Half-Life to Price Index Convergence among U.S. Cities
Version of Record online: 16 JUL 2009
© 2009 The Ohio State University
Journal of Money, Credit and Banking
Volume 41, Issue 5, pages 1041–1046, August 2009
How to Cite
NATH, H. K. and SARKAR, J. (2009), Unbiased Estimation of the Half-Life to Price Index Convergence among U.S. Cities. Journal of Money, Credit and Banking, 41: 1041–1046. doi: 10.1111/j.1538-4616.2009.00245.x
- Issue online: 16 JUL 2009
- Version of Record online: 16 JUL 2009
- Received September 27, 2007; and accepted in revised form December 8, 2008.
- price index convergence;
- Nickell bias;
- time aggregation bias
Estimates of the half-life to convergence of prices across a panel of cities are subject to bias from three potential sources: inappropriate cross-sectional aggregation of heterogeneous coefficients, presence of lagged dependent variables in a model with individual fixed effects, and time aggregation of commodity prices. This paper finds no evidence of heterogeneity bias in annual CPI data for 17 U.S. cities from 1918 to 2006, but correcting for the “Nickell bias” and time aggregation bias produces a half-life of 7.5 years, shorter than estimates from previous studies.