Complete or Partial Inflation Convergence in the EU?
This paper has one primary aim: to analyze whether there exists evidence in favor of inflation convergence, complete convergence, or common trends, partial convergence, within the European Union (EU). The analysis is done in a bivariate and multivariate framework, for traded and non-traded inflation rates, using sequential unit root tests, common trends analysis, and cointegration tests that allow for structural breaks. The results suggest that there is a di¤erent behavior between traded and non-traded inflation rates. In the bivariate framework, there is much stronger evidence of complete convergence for traded inflation rates than for non-traded inflation rates. In the multivariate framework, the complete convergence is only presented in the most tradeable inflation rate and there is a small number of common trends for the rest of traded inflation rates that suggests evidence of partial convergence in terms of long-run relationships. Finally, neither complete nor partial convergence is presented in the non-traded inflation rates.
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