Price convergence among Indian cities: A cointegration approach

Abstract

Price dynamics in Indian cities were examined using cointegration analysis. We identified and calculated a common trend for prices in 25 major cities in India. Impulse response functions were obtained to calculate the rates of convergence to the prices and we found that the half-life of any shock is very small for Indian cities. Although a close to three-month half-life seems too fast, there is some indication in the literature that half-life can be much smaller than the conventional rates of 3 to 5 years. We have calculated half-life using the panel unit root method, and found that estimates of half-life from cointegration analysis provide a faster convergence rate than estimates using the panel unit root method. We also analyzed how shock can be transmitted from one city to another and found no systematic behavior of transmission from one city to another. JEL Classification Code: F15, E31, C23.

Price dispersion across Indian states: A club convergence analysis

“…Studies in case of Indian states are few. The study by Morshed, Ahn, and Lee (2006) examined the convergence in consumer price indices for industrial workers across 25 Indian cities over the period 1988 to 2001 by applying cointegration analysis. Similarly, Das and Bhattacharya (2008) studied the price convergence using the data of consumer price indices for industrial workers across several regions in India by applying panel unit root tests from 1995 to 2004.…”