Intranational Price Convergence and Price Stickiness: Evidence from Denmark

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We show that estimates of the half-life of deviations from LOOP are biased when not taking into account the precision when aggregating over 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 to 28.7 months when applying the standard method. The heterogeneity in estimated half-life can be explained by price stickiness, distance between regions and whether the good is traded or non-traded.
TidsskriftScandinavian Journal of Economics
Udgave nummer4
Sider (fra-til)1229-1259
StatusUdgivet - 2018

ID: 179591307