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Are euro area inflation rates misaligned?

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  • Lopez, Claude
  • Papell, David

Abstract

We study the behavior of inflation rates among Euro countries. More specifically, we are interested in testing whether and when group convergence dictated by the Maastricht treaty occurs, and we assess the impact of events such as the advent of the Euro and the 2008 financial crisis. Due to the small size of the estimation sample, we propose a new procedure that increases the power of panel unit root tests when used to study group-wise convergence. Applying this new procedure to Euro Area inflation, we find strong and lasting evidence of convergence among the inflation rates soon after the implementation of the Maastricht treaty and a dramatic decrease in the persistence of the differential after the occurrence of the single currency. Furthermore, while we find divergence among some of the Euro countries prior to the 2008 financial crisis, the convergence is strengthened after the crisis for all countries except Greece.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 27929.

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Date of creation: 2010
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Handle: RePEc:pra:mprapa:27929

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Keywords: groupwise convergence; inflation; euro; 2008 crisis;

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Citations

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Cited by:
  1. Angelos Liontakis & Dimitris Kremmydas, 2013. "Food Inflation in EU: Distribution Analysis and Spatial Effects," Working Papers 2013-3, Agricultural University of Athens, Department Of Agricultural Economics.
  2. Helmut Herwartz & Florian Siedenburg, 2013. "To converge or not converge: unit labor cost inflation in the Euro area," Empirical Economics, Springer, vol. 44(2), pages 455-467, April.
  3. Liontakis, Angelos E. & Papadas, Christos T., 2009. "Distribution Dynamics of Food Price Inflation Rates in EU: An Alternative Conditional Density Estimator Approach," 113th Seminar, September 3-6, 2009, Chania, Crete, Greece 58084, European Association of Agricultural Economists.
  4. Borsi, Mihály Tamás & Metiu, Norbert, 2013. "The evolution of economic convergence in the European Union," Discussion Papers 28/2013, Deutsche Bundesbank, Research Centre.
  5. Giorgio Canarella & Stephen Miller & Stephen Pollard, 2011. "The Global Financial Crisis and Stochastic Convergence in the Euro Area," International Advances in Economic Research, Springer, vol. 17(3), pages 315-333, August.
  6. Durand, C. & Lopez, C., 2012. "Taux de change d’équilibre et mesure de la compétitivité au sein de la zone euro," Bulletin de la Banque de France, Banque de France, issue 190, pages 125-134.
  7. Angelos Liontakis & Christos T. Papadas, 2010. "Distribution Dynamics of Food Price Inflation Rates in EU: An Alternative Conditional Density Estimator Approach," Working Papers 2010-6, Agricultural University of Athens, Department Of Agricultural Economics.
  8. Juan Carlos Cuestas & Luis A. Gil-Alana & Karl Taylor, 2012. "Inflation convergence in Central and Eastern Europe with a view to adopting the euro," Working Papers 12-01, Asociación Española de Economía y Finanzas Internacionales.

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