Price Convergence Patterns across U.S. States

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 Phillips and Sul (2007). The empirical findings suggest rejection of full convergence across the 50 U.S. states prices, and the presence of a certain number of convergence clubs. In particular, eleven subgroup convergence clubs emerge, suggesting that great differences in prices indices exist across the U.S. states. The main implications of the paper point out to the low degree of market integration across the U.S. states, to the limitations of using a unique national price deflator to calculate real US state variables, and to the different effects that the national monetary policies directed to stabilize national prices, for example, will have on U.S. state prices.