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A Short History of Price Level Convergence in Europe

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  • RIEMER P. FABER
  • AD C. J. STOKMAN

Abstract

We study the evolution of price level dispersion in Europe by combining time-series information on harmonized indices of consumer prices (HICPs) with occasional observations of absolute price levels. We find that European price levels converged over much of the last 40 to 50 years. In the United States, our benchmark, price level dispersion is more or less stable. A back-of-the-envelope calculation suggests that indirect tax rate harmonization, convergence of nontraded input costs, and convergence of traded input costs (in the form of exchange rate stability and increased openness) are all important in explaining European price level convergence. Copyright (c) 2009 The Ohio State University.

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Bibliographic Info

Article provided by Blackwell Publishing in its journal Journal of Money, Credit and Banking.

Volume (Year): 41 (2009)
Issue (Month): 2-3 (03)
Pages: 461-477

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Handle: RePEc:mcb:jmoncb:v:41:y:2009:i:2-3:p:461-477

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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0022-2879

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Cited by:
  1. Guerreiro, David & Mignon, Valérie, 2013. "On price convergence in Eurozone," Economic Modelling, Elsevier, vol. 34(C), pages 42-51.
  2. Marco Hoeberichts & Ad Stokman, 2005. "Price Setting Behaviour in the Netherlands: Results of a Survey," DNB Working Papers 073, Netherlands Central Bank, Research Department.
  3. Nagayasu, Jun, 2011. "Heterogeneity and convergence of regional inflation (prices)," Journal of Macroeconomics, Elsevier, vol. 33(4), pages 711-723.
  4. Nagayasu, Jun, 2010. "Regional Inflation (Price) Behaviors: Heterogeneity and Convergence," MPRA Paper 25430, University Library of Munich, Germany.
  5. Martin Berka & Michael B. Devereux, 2010. "What determines European real exchange rates?," CAMA Working Papers 2010-17, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
  6. Nagayasu, Jun, 2012. "Regional inflation and industrial structure in monetary union," MPRA Paper 37310, University Library of Munich, Germany.
  7. van der Cruijsen, Carin & Demertzis, Maria, 2011. "How anchored are inflation expectations in EMU countries?," Economic Modelling, Elsevier, vol. 28(1-2), pages 281-298, January.
  8. Friedrich Fritzer, 2012. "Price Level Convergence Before and After the Advent of EMU," Monetary Policy & the Economy, Oesterreichische Nationalbank (Austrian Central Bank), issue 1, pages 105–116.
  9. Martin Berka & Michael B. Devereux, 2013. "Trends in European real exchange rates," Economic Policy, CEPR & CES & MSH, vol. 28(74), pages 193-242, 04.
  10. Fischer, Christoph, 2012. "Price convergence in the EMU? Evidence from micro data," European Economic Review, Elsevier, vol. 56(4), pages 757-776.
  11. Marina Glushenkova & Marios Zachariadis, 2014. "Understanding Law-of-One-Price Deviations across Europe Before and After the Euro," University of Cyprus Working Papers in Economics 01-2014, University of Cyprus Department of Economics.
  12. Liontakis, Angelos E. & Papadas, Christos T., 2009. "Distribution Dynamics of Food Price Inflation Rates in EU: An Alternative Conditional Density Estimator Approach," 113th Seminar, September 3-6, 2009, Chania, Crete, Greece 58084, European Association of Agricultural Economists.

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