Do Regional Price Levels Converge?

Abstract

We investigate price level convergence on the base of regional data for 439 German districts.. - First and second generation tests are applied to the overall consumer price index as well as to the index without housing prices. They indicate a lack of regional price convergence. The. - second generation tests reveal that the source of the unit root is likely common for all regions. One rationale of our findings is the persistent west-east divide in consumer prices. A second argument is related to the persistence of the price gradient between urban and rural regions.