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Comparative Price Level (Cpl) – A Representative Parameter of Economic Convergence

Author

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  • Emilian Dobrescu

    () (Centre for Macroeconomic Modelling, National Institute for Economic Research, Romanian Academy)

Abstract

On the nominal side of economic convergence, the functional compatibility is globally reflected in the comparative price level (CPL). This is approximated through the ratio of the purchasing power parity of a given currency to its market exchange rate. The present paper examines the behavior of this variable in the European Union context, namely 19 countries already forming the Euro Zone, and the other nine ones that have to be also integrated into this common currency area. A simple analytical framework of CPL is skaetched, the main attention being paid to revealing its deep connection with the economic development level. An extended empirical analysis, covering 20-year statistical series (1995-2014) for all the 28 members of the European Union is presented. The particular position of the Romanian economy is separately examined. The previous evolution of Romania’s CPL as against the EU level is completed by an econometric attempt to forecast it for the years 2015-2016. The simulations based on updating the 2012 Version of the Romanian Macromodel were used. Some conclusions and further research suggestions finalize the paper.

Suggested Citation

  • Emilian Dobrescu, 2015. "Comparative Price Level (Cpl) – A Representative Parameter of Economic Convergence," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(4), pages 7-28, December.
  • Handle: RePEc:rjr:romjef:v::y:2015:i:4:p:7-28
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    File URL: http://www.ipe.ro/rjef/rjef4_15/rjef4_2015p7-28.pdf
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    References listed on IDEAS

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    1. Engel, Charles, 1993. "Real exchange rates and relative prices : An empirical investigation," Journal of Monetary Economics, Elsevier, vol. 32(1), pages 35-50, August.
    2. Willem Buiter & Clemens Grafe, 2001. "Central Banking and the Choice of Currency Regime in Accession Countries," Revue d'Économie Financière, Programme National Persée, vol. 6(1), pages 287-318.
    3. Iancu, Aurel, 2007. "Economic Convergence. Applications - Second Part -," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 4(4), pages 24-48, December.
    4. Bela Balassa, 1964. "The Purchasing-Power Parity Doctrine: A Reappraisal," Journal of Political Economy, University of Chicago Press, vol. 72, pages 584-584.
    5. Galor, Oded, 1996. "Convergence? Inferences from Theoretical Models," Economic Journal, Royal Economic Society, vol. 106(437), pages 1056-1069, July.
    6. Rudiger Dornbusch, 1985. "Purchasing Power Parity," NBER Working Papers 1591, National Bureau of Economic Research, Inc.
    7. Emilian Dobrescu, 2013. "Updating the Romanian Economic Macromodel," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(4), pages 5-31, December.
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    11. Iancu, Aurel, 2007. "The Question of Economic Convergence - first part -," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 4(3), pages 5-18, September.
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    1. repec:rjr:romjef:v::y:2017:i:2:p:5-28 is not listed on IDEAS

    More about this item

    Keywords

    economic convergence; comparative price level; macromodel; simulations;

    JEL classification:

    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • C67 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Input-Output Models
    • F63 - International Economics - - Economic Impacts of Globalization - - - Economic Development
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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