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 -