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On price convergence in Eurozone

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Author Info

  • David Guerreiro
  • Valérie Mignon

Abstract

We investigate price level convergence with Germany in eleven countries belonging to the Eurozone between January 1970 and July 2011. Relying on smooth transition regression models, we show that the price convergence process is nonlinear, depending on the size of the price differential: for most countries, price convergence occurs only when price differentials with Germany exceed a certain threshold. Moreover, our findings put forward some heterogeneity across the Eurozone members in terms of price convergence speed, that can be explained by the evolution of price-competitiveness, rigidities in labor markets, but also by specialization patterns.

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File URL: http://economix.fr/pdf/dt/2011/WP_EcoX_2011-34.pdf
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Bibliographic Info

Paper provided by University of Paris West - Nanterre la Défense, EconomiX in its series EconomiX Working Papers with number 2011-34.

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Length: 19 pages
Date of creation: 2011
Date of revision:
Handle: RePEc:drm:wpaper:2011-34

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Related research

Keywords: price convergence; Eurozone; smooth transition regression models; half-life;

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  1. Ivo Arnold & Bastiaan Verhoef, 2004. "External causes of Euro zone inflation differentials," Intereconomics: Review of European Economic Policy, Springer, vol. 39(5), pages 254-263, September.
  2. Mario Crucini & Chris Telmer & Marios Zachariadis, . "Understanding European Real Exchange Rates," GSIA Working Papers 227, Carnegie Mellon University, Tepper School of Business.
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  1. Wikipedia:Reference desk/Archives/Humanities/2012 July 27 in Wikipedia (English)

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