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The Behaviour of Relative Prices in the European Union: A Sectoral Analysis

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  • Chen, Natalie

Abstract

Using multivariate unit root test methods, this Paper investigates the Purchasing Power Parity (PPP) hypothesis at the sectoral level across six European countries over the last seventeen years. Evidence of mean reversion toward PPP is found for the relative prices of some sectors and countries. Mean reversion in relative prices is explained by cross-country and cross-sectoral characteristics such as the distance between countries, nominal exchange rate volatility, differences in GDP per capita, non-tariff barriers, research and development, advertising, industrial concentration and tradability of the products.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 3320.

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Date of creation: Apr 2002
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Handle: RePEc:cpr:ceprdp:3320

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Keywords: LOOP; mean reversion; multivariate unit root tests; persistence; PPP;

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References

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Citations

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Cited by:
  1. Evzen Kocenda & Ali M. Kutan & Taner M. Yigit, 2005. "Pilgrims to the Eurozone: How Far, How Fast?," CERGE-EI Working Papers wp279, The Center for Economic Research and Graduate Education - Economic Institute, Prague.
  2. Philip R. Lane & Patrick Honohan, 2003. "Divergent Inflation Rates in EMU," Trinity Economics Papers, Trinity College Dublin, Department of Economics 20034, Trinity College Dublin, Department of Economics.
  3. Katja Funke & Isabell Koske, 2008. "Does the Law of One Price Hold within the EU? A Panel Analysis," International Advances in Economic Research, Springer, Springer, vol. 14(1), pages 11-24, February.
  4. Evzen Kocenda & Ali M. Kutan & M. Taner Yigit, 2005. "Pilgrims to Eurozone: How Far, How Fast," Departmental Working Papers, Bilkent University, Department of Economics 0501, Bilkent University, Department of Economics.
  5. Isabelle Méjean & Cyrille Schwellnus, 2009. "Price Convergence in the European Union: Within Firms or Composition of Firms?," Working Papers hal-00354190, HAL.
  6. Alexander W. Hoffmaister, 2006. "Barriers to Retail Competition and Prices," IMF Working Papers 06/231, International Monetary Fund.
  7. Philipp Maier, 2005. "A `Global Village' without borders? International price differentials at eBay," DNB Working Papers, Netherlands Central Bank, Research Department 044, Netherlands Central Bank, Research Department.
  8. Nagayasu, Jun & Inakura, Noriko, 2009. "PPP: Further evidence from Japanese regional data," International Review of Economics & Finance, Elsevier, Elsevier, vol. 18(3), pages 419-427, June.
  9. Salvador Gil-Pareja & Simón Sosvilla-Rivero, . "Price Convergence in the European Car Market," Working Papers 2005-22, FEDEA.
  10. Luis Orea, 2010. "The effect of legal barriers to entry in the Spanish retail market: a local market approach," Hacienda Pública Española, IEF, IEF, vol. 193(2), pages 49-74, June.
  11. Rodolphe Blavy & Luciana Juvenal, 2008. "Mexico's integration into NAFTA markets: a view from sectoral real exchange rates," Working Papers 2008-046, Federal Reserve Bank of St. Louis.
  12. Luciana Juvenal & Rodolphe Blavy, 2008. "Mexico'S Integration Into Nafta Markets," IMF Working Papers 08/123, International Monetary Fund.
  13. Joseph Byrne & Giorgio Fazio & Davide Piacentino, 2009. "Total Factor Productivity Convergence among Italian Regions: Some Evidence from Panel Unit Root Tests," Regional Studies, Taylor & Francis Journals, Taylor & Francis Journals, vol. 43(1), pages 63-76.
  14. 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, University of Cyprus Department of Economics 01-2014, University of Cyprus Department of Economics.

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