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Inflation convergence after the introduction of the Euro

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  • Mentz, Markus
  • Sebastian, Steffen P.
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    Abstract

    Using the Johansen test for cointegration, we examine to which extent inflation rates in the Euro area have converged after the introduction of a single currency. Since the assumption of non-stationary variables represents the pivotal point in cointegration analyses we pay special attention to the appropriate identification of non-stationary inflation rates by the application of six different unit root tests. We compare two periods, the first ranging from 1993 to 1998 and the second from 1993 to 2002 with monthly observations. The Johansen test only finds partial convergence for the former period and no convergence for the latter. --

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    Bibliographic Info

    Paper provided by Center for Financial Studies (CFS) in its series CFS Working Paper Series with number 2003/30.

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    Date of creation: 2003
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    Handle: RePEc:zbw:cfswop:200330

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    Keywords: Unit root; Cointegration; Inflation convergence;

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    1. Osterwald-Lenum, Michael, 1992. "A Note with Quantiles of the Asymptotic Distribution of the Maximum Likelihood Cointegration Rank Test Statistics," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 54(3), pages 461-72, August.
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    5. Lee, Hsiu-Yun & Wu, Jyh-Lin, 2001. "Mean Reversion of Inflation Rates: Evidence from 13 OECD Countries," Journal of Macroeconomics, Elsevier, Elsevier, vol. 23(3), pages 477-487, July.
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    13. Elliott, Graham & Rothenberg, Thomas J & Stock, James H, 1996. "Efficient Tests for an Autoregressive Unit Root," Econometrica, Econometric Society, Econometric Society, vol. 64(4), pages 813-36, July.
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    17. Mark Holmes, 2002. "Panel data evidence on inflation convergence in the European Union," Applied Economics Letters, Taylor & Francis Journals, Taylor & Francis Journals, vol. 9(3), pages 155-158.
    18. Westbrook, Jilleen R, 1998. "Monetary Integration, Inflation Convergence and Output Shocks in the European Monetary System," Economic Inquiry, Western Economic Association International, Western Economic Association International, vol. 36(1), pages 138-44, January.
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    Cited by:
    1. Yilmazkuday, Hakan, 2009. "Inflation Targeting and Inflation Convergence within Turkey," MPRA Paper 16770, University Library of Munich, Germany.
    2. Giulio Palomba & Emma Sarno & Alberto Zazzaro, 2009. "Testing similarities of short-run inflation dynamics among EU-25 countries after the Euro," Empirical Economics, Springer, Springer, vol. 37(2), pages 231-270, October.
    3. Aslan, Alper, 2008. "Türkiye’de Suç Oranları Sürekliliğinin Analizi," MPRA Paper 10610, University Library of Munich, Germany.
    4. Sebastian Dullien & Ulrich Fritsche, 2008. "Does the dispersion of unit labor cost dynamics in the EMU imply long-run divergence?," International Economics and Economic Policy, Springer, Springer, vol. 5(3), pages 269-295, November.
    5. Sebastian Dullien & Ulrich Fritsche, 2007. "Does the Dispersion of Unit Labor Cost Dynamics in the EMU Imply Long-Run Divergence?: Results from a Comparison with the United States of America and Germany," Discussion Papers of DIW Berlin 674, DIW Berlin, German Institute for Economic Research.
    6. Ulrich Fritsche & Vladimir Kuzin, 2007. "Unit labor cost growth differentials in the Euro area, Germany, and the US: lessons from PANIC and cluster analysis," Macroeconomics and Finance Series, Hamburg University, Department Wirtschaft und Politik 200703, Hamburg University, Department Wirtschaft und Politik.
    7. Pelinescu, Elena & Caraiani, Petre, 2006. "Does the Inflation Targeting Have a Positive Role upon the Convergence of the Inflation Rate?," Journal for Economic Forecasting, Institute for Economic Forecasting, Institute for Economic Forecasting, vol. 3(3), pages 39-50, September.
    8. Uwe Hassler & Matei Demetrescu, 2005. "Spurious Persistence and Unit Roots due to Seasonal Differencing: The Case of Inflation Rates," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), Justus-Liebig University Giessen, Department of Statistics and Economics, Justus-Liebig University Giessen, Department of Statistics and Economics, vol. 225(4), pages 413-426, July.
    9. Christian Proaño Acosta, 2007. "Inflation Differentials and Business Cycle Fluctuations in the European Monetary Union," IMK Working Paper 05-2007, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.

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