On the evolution of relative prices and its nature at the regional level: The case of Spain

This paper studies the relevance and nature of shifts in relative prices at the regional level in Spain. Deviations in relative prices tend to be smal l (at most half a point of inflation annually) but persistent. They are det ermined by features intrinsic to deep economic integration, in particular, wage mechanisms operating at the national level. This is in stark contrast to evidence at the international level. Therefore, while acknowledging that divergent price evolutions are possible in the European Monetary Union, th eir nature will be different from those observed among Spanish regions.