Price-Level-Convergence of Food Baskets in Mexican Cities:Inflation-Targeting and PPP

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Alfonso Mendoza-Velázquez Alejandro Rondero-García

Resumen

We investigate relative price convergence under Inflation Targeting in Mexico from January 2010 to March 2018. A panel of 46 rural and urban cities shows half-lives ranging from 0.70 to 3.10 months. We find an increase in the speed of convergence during the period of U.S. monetary normalization. We also find a positive response of price variation to measures of distance and a slower speed of adjustment between cities of greater distance, suggesting that transportation costs are not necessarily a barrier to arbitrage opportunities. While univariate tests suggest that not all cities converge to the same long-run trend, panel unit root tests accounting for cross-sectional dependence favor the relative convergence of food prices. Beta convergence estimates suggest disparities in the cost of food baskets.

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MENDOZA-VELÁZQUEZ, Alfonso; RONDERO-GARCÍA, Alejandro. Price-Level-Convergence of Food Baskets in Mexican Cities:Inflation-Targeting and PPP. Paradigma Económico, [S.l.], v. 13, n. 2, p. 131-164, ago. 2021. ISSN 2594-1348. Disponible en: <https://paradigmaeconomico.uaemex.mx/article/view/16043>. Fecha de acceso: 22 sep. 2021 doi: https://doi.org/10.36677/paradigmaeconomico.v13i2.16043.
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