Intranational Price Convergence and Price Stickiness: Evidence from Denmark

TY - JOUR

T1 - Intranational Price Convergence and Price Stickiness

T2 - Evidence from Denmark

AU - Bergman, Ulf Michael

AU - Heebøll, Christian

AU - Hansen, Niels Lynggaard

PY - 2018/10

Y1 - 2018/10

N2 - We show that estimates of the half-life of deviations from the law of one price are biased when their precision is not taken into account when aggregating data for different types of goods. Using a comprehensive dataset with monthly price data for 124 homogeneous products across regions in Denmark over the period 1997–2010, we find a large positive aggregation bias. On average, we find that the half-life is 8.4 months when taking the bias into account, compared with 28.7 months when applying the standard method. The heterogeneity in the estimated half-life can be explained by price stickiness, distance between regions, and whether the good is traded or non-traded.

AB - We show that estimates of the half-life of deviations from the law of one price are biased when their precision is not taken into account when aggregating data for different types of goods. Using a comprehensive dataset with monthly price data for 124 homogeneous products across regions in Denmark over the period 1997–2010, we find a large positive aggregation bias. On average, we find that the half-life is 8.4 months when taking the bias into account, compared with 28.7 months when applying the standard method. The heterogeneity in the estimated half-life can be explained by price stickiness, distance between regions, and whether the good is traded or non-traded.

U2 - 10.1111/sjoe.12259

DO - 10.1111/sjoe.12259

M3 - Journal article

SN - 0347-0520

VL - 120

SP - 1229

EP - 1259

JO - Scandinavian Journal of Economics

JF - Scandinavian Journal of Economics

IS - 4

ER -