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Relative Inflation in the EU Accession Countries of Central and Eastern Europe

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Author Info

  • Hiranya Nath

    ()
    (Department of Economics, Sam Houston State University)

  • Kiril Tochkov

    ()
    (Department of Economics, Texas Christian University)

Abstract

Following their EU accession, the new member countries from Central and Eastern Europe (CEE) must achieve sustainable price stability as one of the pre-conditions for joining the Economic and Monetary Union (EMU) and adopting the euro. This paper examines the distribution dynamics of inflation rates in ten EU members from CEE relative to the EMU accession benchmark inflation over the period 1990-2009. In contrast to previous studies, we use nonparametric methods to test for convergence in inflation rates between CEE and the EMU benchmark as well as within the CEE sample. Over the entire sample period, we detect a general shift in the CEE inflation distribution towards the EMU benchmark along with intradistributional convergence. However, this process is not uniform. In the early years, it was equally likely for CEE inflation rates to move towards or away from the benchmark. The resulting multimodal distribution gave way to a unimodal distribution in the years leading up to the EU accession, accompanied by a marked shift towards the EMU benchmark. In more recent years, emergence of a bimodal distribution signaled the stratification of relative inflation in CEE into two convergence clubs, which has intensified since the start of the global economic crisis.

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File URL: http://www.econ.tcu.edu/RePEc/tcu/wpaper/wp11-05.pdf
File Function: First version, 2011
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Bibliographic Info

Paper provided by Texas Christian University, Department of Economics in its series Working Papers with number 201105.

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Length: 30 pages
Date of creation: Feb 2011
Date of revision:
Handle: RePEc:tcu:wpaper:201105

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Web page: http://www.econ.tcu.edu/
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Related research

Keywords: Inflation; Convergence; EU Accession Countries; Distribution Dynamics;

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  1. Bettina Becker & Stephen G. Hall, 2009. "How Far From the Euro Area? Measuring Convergence of Inflation Rates in Eastern Europe," Discussion Paper Series 2009_05, Department of Economics, Loughborough University, revised Mar 2009.
  2. Camarero, M. & Esteve, V. & Tamarit, C., 1996. "Price Convergence of Periphical European Countries on the Way to the EMU: A Time Series Approach," Weiss Center Working Papers 96-2, Wharton School - Weiss Center for International Financial Research.
  3. Imed Drine & Christophe Rault, 2005. "Testing for inflation convergence between the Euro Zone and its CEE partners," William Davidson Institute Working Papers Series wp768, William Davidson Institute at the University of Michigan.
  4. Brada, Josef C. & Kutan, Ali M. & Zhou, Su, 2005. "Real and monetary convergence between the European Union's core and recent member countries: A rolling cointegration approach," Journal of Banking & Finance, Elsevier, vol. 29(1), pages 249-270, January.
  5. Peter Backé & Jarko Fidrmuc & Thomas Reininger & Franz Schardax, 2002. "Price Dynamics in Central and Eastern European EU Accession," Working Papers 61, Oesterreichische Nationalbank (Austrian Central Bank).
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