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Unit labor cost growth differentials in the Euro area, Germany, and the US: lessons from PANIC and cluster analysis

  • Ulrich Fritsche

    ()

    (Department for Economics and Politics, University of Hamburg, and DIW Berlin)

  • Vladimir Kuzin

    ()

    (Goethe-University Frankfurt, Faculty of Economics and Business Administration)

Inflation differentials in the Euro area are mainly due to a sustained divergence of wage developments across the Euro area, and narrower differences in labour productivity growth (Alvarez et al., 2006). We investigate convergence of inflation using unit labour cost (ULC) growth and applying PANIC (Bai and Ng, 2002, 2004) and cluster procedures (Hobijn and Franses, 2000, Busetti et al., 2006) to Euro area countries as well as US States, US Census Regions and German Laender. Euro area differs in that dispersion in general (and its fraction due to idiosyncratic factors in specific) is larger and common factors are much less important in explaining the variance of ULC growth. We report evidence for convergence clusters in all countries.

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File URL: http://www.wiso.uni-hamburg.de/repec/hepdoc/macppr_3_2007.pdf
File Function: Second version, February 2007
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Paper provided by Hamburg University, Department Wirtschaft und Politik in its series Macroeconomics and Finance Series with number 200703.

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Length: 38 pages
Date of creation: Feb 2007
Date of revision:
Handle: RePEc:hep:macppr:200703
Contact details of provider: Web page: http://www.wiso.uni-hamburg.de/dwp

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