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On price convergence in Eurozone

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

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Cited by:
  1. David Guerreiro, 2013. "Is the European debt crisis a mere balance of payments crisis?," FIW Working Paper series 118, FIW.
  2. 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.

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