The Empirical Economics Letters
Volume 5, Number 1, Page 13
January 2006
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 Canada’s 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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