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Analysing Convergence in Europe Using a Non-linear Single Factor Model

  • Ulrich Fritsche

    ()

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

  • Vladimir Kuzin

    ()

    (German Institute for Economic Research (DIW) Berlin)

We investigate convergence in European price level, unit labor cost, income, and productivity data over the period of 1960-2006 using the non-linear time-varying coefficients factor model proposed by Phillips and Sul (2007). This approach is extremely flexible on order to model a large number of transition paths to convergence. We find regional clusters in consumer price level data. GDP deflator data and unit labor cost data are far less clustered than CPI data. Income per capita data indicate the existence of three convergence clubs without strong regional linkages; Italy and Germany are not converging to any of those clubs. Total factor productivity data indicate the existence of a small club including fast-growing countries and a club consisting of all other countries.

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File URL: http://www.wiso.uni-hamburg.de/repec/hepdoc/macppr_2_2008.pdf
File Function: First version, 2008
Download Restriction: no

Paper provided by Hamburg University, Department Wirtschaft und Politik in its series Macroeconomics and Finance Series with number 200802.

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Length: 22 pages
Date of creation: Jun 2008
Date of revision:
Handle: RePEc:hep:macppr:200802
Contact details of provider: Web page: http://www.wiso.uni-hamburg.de/dwp
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  1. Rose, Andrew K & Engel, Charles, 2002. "Currency Unions and International Integration," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 34(4), pages 1067-89, November.
  2. Nazrul Islam, 2003. "What have We Learnt from the Convergence Debate?," Journal of Economic Surveys, Wiley Blackwell, vol. 17(3), pages 309-362, 07.
  3. Silvana Tenreyro & Robert J. Barro, 2003. "Economic Effects of Currency Unions," NBER Working Papers 9435, National Bureau of Economic Research, Inc.
  4. Phillips, Peter C.B., 2005. "Challenges of trending time series econometrics," Mathematics and Computers in Simulation (MATCOM), Elsevier, vol. 68(5), pages 401-416.
  5. Lane, Philip R., 2006. "The Real Effects of EMU," CEPR Discussion Papers 5536, C.E.P.R. Discussion Papers.
  6. Bart Hobijn & Philip Hans Franses, 2000. "Asymptotically perfect and relative convergence of productivity," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 15(1), pages 59-81.
  7. Andrew K. Rose, 2000. "One money, one market: the effect of common currencies on trade," Economic Policy, CEPR;CES;MSH, vol. 15(30), pages 7-46, 04.
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