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How far from the Euro Area? Measuring convergence of inflation rates in Eastern Europe

  • Becker, Bettina
  • Hall, Stephen G.

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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Article provided by Elsevier in its journal Economic Modelling.

Volume (Year): 26 (2009)
Issue (Month): 4 (July)
Pages: 788-798

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Handle: RePEc:eee:ecmode:v:26:y:2009:i:4:p:788-798
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/30411

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  1. Hall, Stephen G & Robertson D & Wickens, M R, 1997. "Measuring Economic Convergence," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 2(2), pages 131-43, April.
  2. 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.
  3. Barro, Robert J, 1991. "Economic Growth in a Cross Section of Countries," The Quarterly Journal of Economics, MIT Press, vol. 106(2), pages 407-43, May.
  4. Barro, Robert J & Sala-i-Martin, Xavier, 1992. "Convergence," Journal of Political Economy, University of Chicago Press, vol. 100(2), pages 223-51, April.
  5. T. Anderson, 1963. "The use of factor analysis in the statistical analysis of multiple time series," Psychometrika, Springer, vol. 28(1), pages 1-25, March.
  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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