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A new look at economic convergence in Europe: a common factor approach

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  • Bettina Becker

    (Department of Economics, Loughborough University, UK)

  • Stephen G. Hall

    (Department of Economics, University of Leicester, UK)

Abstract

We propose a common factor approach to analyse convergence, which we implement using principal components analysis. We show that this method provides a useful new way of approaching the convergence debate. We apply this technique to a data set of monthly exchange rates of the 12 member countries of the European Monetary Union (EMU) over 1970-2001. Our empirical results neatly capture the convergence patterns related to the various regimes from Bretton Woods towards EMU. The UK's Pound Sterling has been on a gradual convergence path to the Euro, although convergence is less progressed than it was for the EMU countries by 1999. Copyright © 2008 John Wiley & Sons, Ltd.

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Article provided by John Wiley & Sons, Ltd. in its journal International Journal of Finance & Economics.

Volume (Year): 14 (2009)
Issue (Month): 1 ()
Pages: 85-97

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Handle: RePEc:ijf:ijfiec:v:14:y:2009:i:1:p:85-97

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  1. Eickmeier, Sandra & Breitung, Jorg, 2006. "How synchronized are new EU member states with the euro area? Evidence from a structural factor model," Journal of Comparative Economics, Elsevier, vol. 34(3), pages 538-563, September.
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  7. Eickmeier, Sandra, 2005. "Common stationary and non-stationary factors in the euro area analyzed in a large-scale factor model," Discussion Paper Series 1: Economic Studies 2005,02, Deutsche Bundesbank, Research Centre.
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Cited by:
  1. Aziakpono, Meshach & Kleimeier, Stefanie & Sander, Harald, 2007. "Banking Market Integration in the SADC Countries: Evidence from Interest Rate Analyses," Research Memorandum 047, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
  2. B Harrison & W Moore, 2010. "Stock Market Co-Movement in the Caribbean," Economic Issues Journal Articles, Economic Issues, Economic Issues, vol. 15(1), pages 1-15, March.
  3. Becker, Bettina & Hall, Stephen G., 2009. "How far from the Euro Area? Measuring convergence of inflation rates in Eastern Europe," Economic Modelling, Elsevier, vol. 26(4), pages 788-798, July.

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