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Do Prices in the EMU Converge (Non-linearly)?

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Author Info

  • Ulrich Fritsche

    ()
    (Department for Socioeconomics, Department for Economics, University of Hamburg)

  • Sarah Lein

    ()
    (Swiss National Bank (SNB))

  • Sebastian Weber

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

Abstract

This paper examines the current state of price convergence amongst the eleven initial EMU member states. Special attention is given to possible changes in the convergence process during the euro cash changeover. We apply the sigma-convergence approach using both panel estimates of changes in the deterministic time trend of a coefficient of variation and stochastic kernel-density estimates. We find that convergence took place before 2000, slowed down substantially between 2000 and 2003, and resurfaced after 2003. This points to a non-linear convergence path. We show that stronger convergence is associated with periods of positive and less-dispersed output gaps across member states. There are no big differences between the results for tradables and non-tradables, indicating that Balassa-Samuelson effects are relatively weak.

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File URL: http://www.wiso.uni-hamburg.de/repec/hepdoc/macppr_4_2009.pdf
File Function: First version, 2009
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Bibliographic Info

Paper provided by Hamburg University, Department Wirtschaft und Politik in its series Macroeconomics and Finance Series with number 200904.

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Length: 32 pages
Date of creation: Jul 2009
Date of revision:
Handle: RePEc:hep:macppr:200904

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

Keywords: Prices; European Monetary Union; Sigma-convergence; Kernel-density Estimation; Balassa-Samuelson Effect;

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References

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  1. 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.
  2. Rogers, John H., 2007. "Monetary union, price level convergence, and inflation: How close is Europe to the USA?," Journal of Monetary Economics, Elsevier, vol. 54(3), pages 785-796, April.
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Cited by:
  1. Ulrich Fritsche & Vladimir Kuzin, 2011. "Analysing convergence in Europe using the non-linear single factor model," Empirical Economics, Springer, vol. 41(2), pages 343-369, October.
  2. Sophie-Charlotte Meyer & Ronald Schettkat, 2013. "Price Convergence in Euroland. Evidence from micro data without noise," Schumpeter Discussion Papers sdp13005, Universit├Ątsbibliothek Wuppertal, University Library.

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