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A new look at economic convergence in Europe: a common factor approach

  • Bettina Becker

    (Department of Economics, Loughborough University, UK)

  • Stephen G. Hall

    (Department of Economics, University of Leicester, UK)

We propose a common factor approach to analyse convergence, which we implement using principal components analysis. We show that this method provides a useful new way of approaching the convergence debate. We apply this technique to a data set of monthly exchange rates of the 12 member countries of the European Monetary Union (EMU) over 1970-2001. Our empirical results neatly capture the convergence patterns related to the various regimes from Bretton Woods towards EMU. The UK's Pound Sterling has been on a gradual convergence path to the Euro, although convergence is less progressed than it was for the EMU countries by 1999. Copyright © 2008 John Wiley & Sons, Ltd.

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File URL: http://hdl.handle.net/10.1002/ijfe.364
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Article provided by John Wiley & Sons, Ltd. in its journal International Journal of Finance & Economics.

Volume (Year): 14 (2009)
Issue (Month): 1 ()
Pages: 85-97

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Handle: RePEc:ijf:ijfiec:v:14:y:2009:i:1:p:85-97
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