A New Look at Economic Convergence in Europe: A Common Factor Approach
AbstractWe propose a common factor approach to analyse convergence, which we implement using principal components analysis. We show that this method provides a useful new way of approaching the convergence debate. We apply this technique to a dataset of nominal and real monthly exchange rates of the twelve member countries of the European Monetary Union over the period 1970-2001. Our empirical results neatly capture the convergence patterns related to the various regimes from Bretton Woods toward EMU. The UK's Pound Sterling has been on a gradual convergence path to the Euro, although convergence is less progressed than it was for the EMU countries by 1999.
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Bibliographic InfoPaper provided by Department of Economics, Loughborough University in its series Discussion Paper Series with number 2007_09.
Date of creation: Feb 2007
Date of revision: Feb 2007
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Postal: Loughborough, Leicestershire, LE11 3TU
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Convergence; exchange rates; European Monetary Union; nominal convergence; real convergence; principal components analysis.;
Other versions of this item:
- Bettina Becker & Stephen G. Hall, 2009. "A new look at economic convergence in Europe: a common factor approach," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 14(1), pages 85-97.
- C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models &bull Diffusion Processes
- F31 - International Economics - - International Finance - - - Foreign Exchange
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