The Empirical Economics Letters

Volume 5, Number 1, Page 13

January 2006

ISSN 1681 8997


Price Convergence and Market Integration: Strong Evidence Using Canada Data


Na Li

Department of Real Estate and Construction, Knowles Building 523, 5/F

The University of Hong Kong, Pokfulam Road, Hong Kong


Jianhui Huang

Department of Mathematics and Statistics

University of Alberta, Edmonton, Canada


Abstract: Based on panel econometric method, this study quantitatively assesses the dynamics of 42 province-level price indices, as well as real wage and unemployment rate within Canada. It finds a overwhelming majority reject the unit root null hypothesis in favor of mean-reverting process without stochastic trend. The average speed at which CPI subgroups move toward parity is well under half a year varying across spectrum of items. The pace accelerates in regression using CPI major components and in estimating individual province coefficient, bounding around two months. These imply Canadaís economy is highly integrated. There is a noteworthy observation that tradable goods are not easier to reject nonstationarity than services that challenges findings of some existing literatures. Our investigation also manifests unemployment rate discrepancies between provinces will persist a longer time than real wage.


Keywords: Price Convergence, Economic Integration, Panel Unit Root Test, Half Life


JEL classification: F15, O51


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