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Is price dynamics homogeneous across Eurozone countries?

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Author Info

  • David Guerreiro
  • Marc Joëts
  • Valérie Mignon

Abstract

The aim of this paper is to investigate whether price dynamics is homogeneous across the Eurozone countries. Relying on monthly data over the January 1970-July 2011 period, we test for the absolute purchasing power parity (PPP) hypothesis through the implementation of second-generation panel unit root and cointegration tests. Our results show that price dynamics are heterogeneous depending on both the time period and the considered group of countries. More specifically, while PPP is validated for the core EMU countries, this hypothesis does not hold for Northern peripheral economies. Turning to the Southern countries, PPP is observed only before the launch of the euro.

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File URL: http://economix.fr/pdf/dt/2012/WP_EcoX_2012-04.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 2012-4.

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Length: 25 pages
Date of creation: 2012
Date of revision:
Handle: RePEc:drm:wpaper:2012-4

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Keywords: price convergence; Eurozone; panel unit root tests; 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, Springer, vol. 39(5), pages 254-263, September.
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Cited by:
  1. David Guerreiro & Valérie Mignon, 2011. "On price convergence in Eurozone," EconomiX Working Papers 2011-34, University of Paris West - Nanterre la Défense, EconomiX.
  2. David Guerreiro, 2013. "Is the European debt crisis a mere balance of payments crisis?," FIW Working Paper series, FIW 118, FIW.

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