Pairwise tests of convergence of Japanese local price levels

This research investigates the convergence of local consumer price indexes (CPIs) within Japan using a pairwise approach. Annual and monthly series of the general and disaggregated CPIs of the 47 prefecture capitals are investigated for the period 1975-2011. The hypothesis of no convergence is rejected regarding the general and disaggregated CPIs, but shares of converging pairs in all possible pairs are often limited. There is differing extent of convergence among goods and services. Further, investigation of effects of price volatility and distance on the convergence is conducted. Their results suggest the existence of transaction costs between cities.