Inflation Convergence in Central and Eastern Europe with a View to Adopting the Euro
AbstractIn this paper we consider inflation rate differentials between seven Central and Eastern Countries (CEECs) and the Eurozone. We focus explicitly upon a group of CEECs given that although they are already member states, they are currently not part of the Economic and Monetary Union (EMU) and must fulfil the Maastricht convergence criteria before being able to adopt the euro. However, this group of countries does not have an opt-out clause and so must eventually adopt the single currency. Hence, considering divergence in inflation rates between each country and the Eurozone is important in that evidence of persistent differences may increase the chance of asymmetric inflationary shocks. Furthermore, once a country joins the Eurozone the operation of a country specific monetary policy is no longer an option. We explicitly test for convergence in the inflation rate differentials, incorporating non-linearities in the autoregressive parameters, fractional integration with endogenous structural changes, and also consider club convergence analysis for the CEECs over the period 1997 to 2011 based on monthly data. Our empirical findings suggest that the majority of countries experience non-linearities in the inflation rate differential, however there is only evidence of a persistent difference in three out of the seven countries. Complementary to this analysis we apply the Phillips and Sul (2007) test for club convergence and find that there is evidence that most of the CEECs converge to a common steady state.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by The University of Sheffield, Department of Economics in its series Working Papers with number 2012005.
Length: 34 pages
Date of creation: Jan 2012
Date of revision:
Central and Eastern Europe ; euro adoption; inflation convergence; non-linearities;
Other versions of this item:
- 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.
- E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
- C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models &bull Diffusion Processes
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Kocenda, Evzen & Papell, David H, 1997. "Inflation Convergence within the European Union: A Panel Data Analysis," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 2(3), pages 189-98, July.
- Lehmann, Hartmut & Muravyev, Alexander, 2009. "How Important Are Labor Market Institutions for Labor Market Performance in Transition Countries?," IZA Discussion Papers 4673, Institute for the Study of Labor (IZA).
- Lopez, Claude & Papell, David H., 2012.
"Convergence of Euro area inflation rates,"
Journal of International Money and Finance,
Elsevier, vol. 31(6), pages 1440-1458.
- 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.
- Lopez, Claude & Papell, David, 2010. "Are euro area inflation rates misaligned?," MPRA Paper 27929, University Library of Munich, Germany.
- Lopez, C. & Papell, David H., 2011. "Convergence of Euro Area Inflation Rates," Working papers 326, Banque de France.
- Luis A. Gil-Alana, .
"Fractional integration and structural breaks at unknown periods of time,"
Faculty Working Papers
16/06, School of Economics and Business Administration, University of Navarra.
- Luis A. Gil-Alana, 2008. "Fractional integration and structural breaks at unknown periods of time," Journal of Time Series Analysis, Wiley Blackwell, vol. 29(1), pages 163-185, 01.
- Diebold, Francis X. & Inoue, Atsushi, 2001.
"Long memory and regime switching,"
Journal of Econometrics,
Elsevier, vol. 105(1), pages 131-159, November.
- Busetti, Fabio & Forni, Lorenzo & Harvey, Andrew & Venditti, Fabrizio, 2006.
"Inflation convergence and divergence within the European Monetary Union,"
Working Paper Series
0574, European Central Bank.
- Fabio Busetti & Lorenzo Forni & Andrew Harvey & Fabrizio Venditti, 2007. "Inflation Convergence and Divergence within the European Monetary Union," International Journal of Central Banking, International Journal of Central Banking, vol. 3(2), pages 95-121, June.
- Karsten Staehr, 2010. "Income convergence and inflation in Central and Eastern Europe : does the sun always rise in the East," Bank of Estonia Working Papers wp2010-04, Bank of Estonia, revised 22 Mar 2010.
- Juan Carlos Cuestas & Mercedes Monfort & Javier Ordóñez, 2011. "How big is the 'German locomotive'? A perpective from Central and Eastern Europen countries' unemployment rates," Working Papers 2011008, The University of Sheffield, Department of Economics, revised Apr 2011.
- Thomas Mikosch & Catalin Starica, 2004. "Non-stationarities in financial time series, the long range dependence and the IGARCH effects," Econometrics 0412005, EconWPA.
- Peter C.B. Phillips & Donggyu Sul, 2007.
"Transition Modeling and Econometric Convergence Tests,"
Cowles Foundation Discussion Papers
1595, Cowles Foundation for Research in Economics, Yale University.
- Peter C. B. Phillips & Donggyu Sul, 2007. "Transition Modeling and Econometric Convergence Tests," Econometrica, Econometric Society, vol. 75(6), pages 1771-1855, November.
- Robert J. Barro & Xavier Sala-i-Martin, 1991.
"Convergence across States and Regions,"
Brookings Papers on Economic Activity,
Economic Studies Program, The Brookings Institution, vol. 22(1), pages 107-182.
- Kapetanios, George & Shin, Yongcheol & Snell, Andy, 2003. "Testing for a unit root in the nonlinear STAR framework," Journal of Econometrics, Elsevier, vol. 112(2), pages 359-379, February.
- Kocenda, Evzen, 2001. "Macroeconomic Convergence in Transition Countries," Journal of Comparative Economics, Elsevier, vol. 29(1), pages 1-23, March.
- Thomas Mikosch & Cătălin Stărică, 2004. "Nonstationarities in Financial Time Series, the Long-Range Dependence, and the IGARCH Effects," The Review of Economics and Statistics, MIT Press, vol. 86(1), pages 378-390, February.
- Karl Taylor & Robert McNabb, 2007.
"Business Cycles and the Role of Confidence: Evidence for Europe,"
Oxford Bulletin of Economics and Statistics,
Department of Economics, University of Oxford, vol. 69(2), pages 185-208, 04.
- Bob McNabb & Karl Taylor, 2002. "Business Cycles and the Role of Confidence: Evidence from Europe," Discussion Papers in Economics 02/3, Department of Economics, University of Leicester.
- Mark Holmes, 2002. "Panel data evidence on inflation convergence in the European Union," Applied Economics Letters, Taylor & Francis Journals, vol. 9(3), pages 155-158.
- Barro, Robert J & Sala-i-Martin, Xavier, 1992.
Journal of Political Economy,
University of Chicago Press, vol. 100(2), pages 223-51, April.
- Barro, Robert J. & Sala-i-Martin, Xavier, 1992. "Convergence," Scholarly Articles 3451299, Harvard University Department of Economics.
- Barro, R.J. & Sala-I-Martin, X., 1991. "Convergence," Papers 645, Yale - Economic Growth Center.
- Barro, R.J. & Sala-I-Martin, X., 1991. "Convergence Across States and Regions," Papers 629, Yale - Economic Growth Center.
- Abadir, Karim M. & Distaso, Walter & Giraitis, Liudas, 2007. "Nonstationarity-extended local Whittle estimation," Journal of Econometrics, Elsevier, vol. 141(2), pages 1353-1384, December.
- Sollis, Robert, 2009. "A simple unit root test against asymmetric STAR nonlinearity with an application to real exchange rates in Nordic countries," Economic Modelling, Elsevier, vol. 26(1), pages 118-125, January.
- Cuestas, Juan Carlos & Harrison, Barry, 2010. "Inflation persistence and nonlinearities in Central and Eastern European countries," Economics Letters, Elsevier, vol. 106(2), pages 81-83, February.
- Monfort, Mercedes & Cuestas, Juan Carlos & Ordóñez, Javier, 2013.
"Real convergence in Europe: A cluster analysis,"
Elsevier, vol. 33(C), pages 689-694.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Georgios Efthyvoulou).
If references are entirely missing, you can add them using this form.