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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. Copyright (c) 2009 The Ohio State University.

This paper examines the dynamic behaviour of relative prices across seven Australian cities by applying panel unit root test procedures with structural breaks to quarterly consumer price index data for 1972 Q1-2011 Q4. We find overwhelming evidence of convergence in city relative prices. Three common structural breaks are endogenously determined at 1985, 1995, and 2007. Further, correcting for two potential biases, namely Nickell bias and time aggregation bias, we obtain half-life estimates of 2.3-3.8 quarters that are much shorter than those reported by previous research. Thus, we conclude that both structural breaks and bias corrections are important to obtain shorter half-life estimates. examine price index convergence across major US cities. While Chen and Devereux (2003) and Basher and Carrion-i-Silvestre (2009) consider absolute price convergence, others investigate relative price convergence. All these studies use aggregate price indices. However, they were preceded by two influential studies -Engel and Rogers (1996) and Parsley and Wei (1996) that look into the disaggregate prices of various commodities across the US cities. Recently, Crucini and Shintani (2008) have used micro-level price data to investigate persistence of PPP deviations across 13 US cities. The studies that use city-level CPI data from other countries include Carrion-i-Silvestre et al.

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