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Anatomy of Regional Price Differentials: Evidence From Micro Price Data

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  • Sebastian Weinand
  • Ludwig von Auer

Abstract

Over the last three decades the supply of economic statistics has vastly improved. Unfortunately, statistics on regional price levels (sub- national purchasing power parities) have been exempt from this positive trend, even though they are indispensable for meaningful spatial comparisons of regional output, income, wages, productivity, standards of living, and poverty. To improve the situation, our paper demonstrates that a highly disaggregated and reliable regional price index can be compiled from data that already exist. We use the micro price data that have been collected for Germany’s Consumer Price Index in May 2016. For the computation we introduce a multi-stage version of the Country-Product-Dummy method. The unique quality of our price data set allows us to depart from previous spatial price comparisons and to compare only exactly identical products. We find that the price levels of the 402 counties and cities of Germany are largely driven by the cost of housing and to a much lesser degree by the prices of goods and services. The overall price level in the most expensive region, Munich, is about 27 percent higher than in the cheapest region. Our results also reveal strong spatial autocorrelation.

Suggested Citation

  • Sebastian Weinand & Ludwig von Auer, 2019. "Anatomy of Regional Price Differentials: Evidence From Micro Price Data," RatSWD Working Papers 268, German Data Forum (RatSWD).
    • Handle: RePEc:rsw:rswwps:rswwps268
    DOI: https://doi.org/10.17620/02671.37
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    Cited by:

    1. Goldfayn-Frank, Olga & Wohlfart, Johannes, 2020. "Expectation formation in a new environment: Evidence from the German reunification," Journal of Monetary Economics, Elsevier, vol. 115(C), pages 301-320.
    2. Lichner, Ivan & Lyócsa, Štefan & Výrostová, Eva, 2022. "Nominal and discretionary household income convergence: The effect of a crisis in a small open economy," Structural Change and Economic Dynamics, Elsevier, vol. 61(C), pages 18-31.
    3. Weinand, Sebastian, 2020. "Measuring spatial price differentials: A comparison of stochastic index number methods," Discussion Papers 12/2020, Deutsche Bundesbank.

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    More about this item

    Keywords

    spatial price comparison; regional price index; PPP; CPD-method; hedonic regression; consumer price data;
    All these keywords.

    JEL classification:

    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
    • C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • O18 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Urban, Rural, Regional, and Transportation Analysis; Housing; Infrastructure
    • R10 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - General

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