Regional prices reconsidered

Purchasing power parities are widely used in cross-country international comparisons of macroeconomic aggregates. Despite their importance, there is much less information about how prices differ across regions within countries. This paper contributes to a growing body of literature seeking to fill this gap by combining consumer price index (CPI) microdata and a variety of other data sources to develop more detailed price measures than has hitherto been possible. Using these, the paper then estimates relative price levels for nomenclature of territorial units of statistics (NUTS)-2 UK sub-regions using a random coefficient regression model. The results provide some empirical evidence against which to assess theoretical models in the literature.