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How Far From the Euro Area? Measuring Convergence of Inflation Rates in Eastern Europe

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Abstract

We present a common factor framework of convergence which we implement using principal components analysis. We apply this technique to a dataset of monthly inflation rates of EMU and the Eastern European New Member Countries (NMC) over 1996-2007. In the earlier years, the NMC rates moved independently from an average of the three best performing countries over the past twelve months, while they moved somewhat closer in line with them in the later years. Looking at the sample of the EMU and NMC countries as a whole, there is evidence of a formation of convergence clubs across the two groups.

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File URL: http://www.lboro.ac.uk/departments/sbe/RePEc/lbo/lbowps/Becker_Hall2009_05.pdf
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Paper provided by Department of Economics, Loughborough University in its series Discussion Paper Series with number 2009_05.

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Date of creation: Mar 2009
Date of revision: Mar 2009
Handle: RePEc:lbo:lbowps:2009_05

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Web page: http://www.lboro.ac.uk/departments/sbe/research/economics/index.html
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Keywords: Convergence; inflation rates; European Monetary Union; principal components analysis.;

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  1. Robert J. Barro, 1989. "Economic Growth in a Cross Section of Countries," NBER Working Papers 3120, National Bureau of Economic Research, Inc.
  2. Hall, Stephen G & Robertson D & Wickens, M R, 1997. "Measuring Economic Convergence," International Journal of Finance & Economics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 2(2), pages 131-43, April.
  3. T. Anderson, 1963. "The use of factor analysis in the statistical analysis of multiple time series," Psychometrika, Springer, Springer, vol. 28(1), pages 1-25, March.
  4. Bettina Becker & Stephen G. Hall, 2007. "A New Look at Economic Convergence in Europe: A Common Factor Approach," Discussion Paper Series 2007_09, Department of Economics, Loughborough University, revised Feb 2007.
  5. Barro, Robert J & Sala-i-Martin, Xavier, 1992. "Convergence," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 100(2), pages 223-51, April.
  6. Volker Nitsch, 2004. "Have a Break, Have a ... National Currency: When Do Monetary Unions Fall Apart?," CESifo Working Paper Series 1113, CESifo Group Munich.
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Cited by:
  1. Hiranya Nath & Kiril Tochkov, 2011. "Relative Inflation in the EU Accession Countries of Central and Eastern Europe," Working Papers, Texas Christian University, Department of Economics 201105, Texas Christian University, Department of Economics.
  2. Nikolay Nenovsky & Kiril Tochkov, 2013. "The Distribution Dynamics of Income in Central and Eastern Europe relative to the EU: A Nonparametric Analysis," William Davidson Institute Working Papers Series wp1063, William Davidson Institute at the University of Michigan.
  3. Agenor, Pierre-Richard & Aizenman, Joshua, 2008. "Capital Market Imperfections and the Theory of Optimum Currency Areas," Santa Cruz Department of Economics, Working Paper Series qt7668j94x, Department of Economics, UC Santa Cruz.
  4. Hiranya Nath & Kiril Tochkov, 2013. "Relative inflation dynamics in the new EU member countries of Central and Eastern Europe," Empirical Economics, Springer, Springer, vol. 45(1), pages 1-22, August.
  5. Robert Garnett & Lisa Vanderlinden, 2011. "Reflexive Pedagogy: Disciplinary Idioms as Resources for Teaching," Working Papers, Texas Christian University, Department of Economics 201106, Texas Christian University, Department of Economics.

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