REAL NATIONAL PRICE LEVELS - AN EMPIRICAL REASSESSMENT

The analytical relationship between the national price level (PL) and the nontradable/tradable price-level ratio (P) can be used to compute a vector of Ps which can serve as the dependent variable in econometri c analysis of PL. This method avoids problems of simultaneity that are introduced by including the share of nontradables in PL regressions. Empirical results support the conventional view that per capita real i ncome is the most important determinant of PL.