This thesis investigates the importance of choice of numeraire city in convergence analysis. By using CPI data of 31 Pakistani cities for period 2001 to 2011 half life is computed for different cities in case of 19 numeraire cities. Average half life by excluding Quetta is found to be less than a month in case of all numeriare cities except Quetta. Highest average half life is found to be 81 months or almost 8 years in case of Quetta as numeriare city while lowest average half life is found to be about 1.2 months in case of Lahore as numeraire. These results imply that choice of numeraire city matters in convergence analysis and there exist effective market integration and PPP holds in case of Pakistan. Supervisor: Dr Hassan M. Mohsin