Price convergence patterns across U.S. States

Abstract

This study examines the convergence patterns of prices across 50 U.S. states over the period 1960-2007, by applying the convergence algorithm developed by Peter C. B. Phillips and Donggyu Sul (2007). The empirical findings suggest the rejection of full convergence across the 50 U.S. states’ prices, and the presence of 11 subgroups, or convergence clubs. The main implications of this paper point to the low degree of market integration across the U.S. states, the limitations of using a unique national price deflator to calculate real U.S. state variables, and the different effects that national monetary policy decisions will have on U.S. state prices.