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Is Price Dynamics Homogeneous Across Eurozone Countries?

  • Mignon, Valérie


    (University of Paris Ouest, EconomiX-CNRS and CEPII)

  • Guerreiro, David


    (University of Paris Ouest, EconomiX-CNRS)

  • Joëts, Marc


    (University of Paris Ouest, EconomiX-CNRS)

The aim of this paper is to investigate whether price dynamics is homogeneous across the Eurozone countries. Relying on monthly data over the January 1970~July 2011 period, we test for the absolute purchasing power parity (PPP) hypothesis through the implementation of second and third-generation panel unit root and cointegration tests. Our results show that price dynamics are heterogeneous depending on both the time period and the considered group of countries. More specifically, while PPP is validated for the core Economic Monetary Union (EMU) countries, this hypothesis does not hold for Northern peripheral economies. Turning to the Southern countries, PPP is observed only before the launch of the euro.

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Article provided by Center for Economic Integration, Sejong University in its journal Journal of Economic Integration.

Volume (Year): 27 (2012)
Issue (Month): ()
Pages: 609-632

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Handle: RePEc:ris:integr:0588
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  1. Ivo Arnold & Bastiaan Verhoef, 2004. "External causes of Euro zone inflation differentials," Intereconomics: Review of European Economic Policy, Springer, vol. 39(5), pages 254-263, September.
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