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Analysing Convergence in Europe Using a Non-linear Single Factor Model

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Author Info

  • Ulrich Fritsche

    ()
    (Department for Economics and Politics, University of Hamburg, and DIW Berlin)

  • Vladimir Kuzin

    ()
    (German Institute for Economic Research (DIW) Berlin)

Abstract

We investigate convergence in European price level, unit labor cost, income, and productivity data over the period of 1960-2006 using the non-linear time-varying coefficients factor model proposed by Phillips and Sul (2007). This approach is extremely flexible on order to model a large number of transition paths to convergence. We find regional clusters in consumer price level data. GDP deflator data and unit labor cost data are far less clustered than CPI data. Income per capita data indicate the existence of three convergence clubs without strong regional linkages; Italy and Germany are not converging to any of those clubs. Total factor productivity data indicate the existence of a small club including fast-growing countries and a club consisting of all other countries.

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File URL: http://www.wiso.uni-hamburg.de/repec/hepdoc/macppr_2_2008.pdf
File Function: First version, 2008
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Bibliographic Info

Paper provided by Hamburg University, Department Wirtschaft und Politik in its series Macroeconomics and Finance Series with number 200802.

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Length: 22 pages
Date of creation: Jun 2008
Date of revision:
Handle: RePEc:hep:macppr:200802

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Web page: http://www.wiso.uni-hamburg.de/dwp
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Related research

Keywords: Price level; Income; Productivity; Convergence; Factor Model; European Monetary Union;

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References

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  1. Silvana Tenreyro & Robert J. Barro, 2003. "Economic Effects of Currency Unions," NBER Working Papers 9435, National Bureau of Economic Research, Inc.
  2. Andrew K. Rose, 2000. "One money, one market: the effect of common currencies on trade," Economic Policy, CEPR & CES & MSH, vol. 15(30), pages 7-46, 04.
  3. Nazrul Islam, 2003. "What have We Learnt from the Convergence Debate?," Journal of Economic Surveys, Wiley Blackwell, vol. 17(3), pages 309-362, 07.
  4. Engel, Charles M & Rose, Andrew K, 2001. "Currency Unions and International Integration," CEPR Discussion Papers 2659, C.E.P.R. Discussion Papers.
  5. Peter C.B. Phillips, 2004. "Challenges of Trending Time Series Econometrics," Cowles Foundation Discussion Papers 1472, Cowles Foundation for Research in Economics, Yale University.
  6. Bart Hobijn & Philip Hans Franses, 2000. "Asymptotically perfect and relative convergence of productivity," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 15(1), pages 59-81.
  7. Philip R. Lane, 2006. "The Real Effects of EMU," The Institute for International Integration Studies Discussion Paper Series iiisdp115, IIIS.
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Cited by:
  1. Lopez, Claude & Papell, David, 2010. "Testing for Group-Wise Convergence with an Application to Euro Area Inflation," MPRA Paper 20585, University Library of Munich, Germany.
  2. König, Jörg & Ohr, Renate, 2012. "Messung ökonomischer Integration in der Europäischen Union: Entwicklung eines EU-Integrationsindexes," Center for European, Governance and Economic Development Research Discussion Papers 135, University of Goettingen, Department of Economics.
  3. Guglielmo Maria Caporale & Burcu Erdogan & Vladimir Kuzin, 2009. "Testing for Convergence in Stock Markets: A Non-Linear Factor Approach," CESifo Working Paper Series 2845, CESifo Group Munich.
  4. König, Jörg & Ohr, Renate, 2012. "Messung ökonomischer Integration in der Europäischen Union: Entwicklung eines EU-Integrationsindexes," Center for European, Governance and Economic Development Research Discussion Papers 135, University of Goettingen, Department of Economics.
  5. Nicholas Apergis & Christina Christou & James Payne, 2011. "Political and Institutional Factors in the Convergence of International Equity Markets: Evidence from the Club Convergence and Clustering Procedure," Atlantic Economic Journal, International Atlantic Economic Society, vol. 39(1), pages 7-18, March.

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