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ULC Dynamics of Euro Area Countries and SR in the Long Run

Listed author(s):
  • Sandra Tatierska


    (Research Department, National Bank of Slovakia)

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    In this paper we analyse the ability of national unit labor costs of euro area countries to converge to the weighted average of the EMU and in the case of SR also to the weighted average of V4 countries. Co-integration between individual and average nominal ULC indices was examined through static (OLS) and dynamic (VEC) tests and estimates. We discovered a significant co-integration under an absolute convergence of the ULC for almost all countries (incl. SR) to the equilibrium, which was determined mainly by the weighted average of the euro area. In general, a significant convergence would enable different levels of nominal ULC but not long-term differences in their development, which is an important criterion for sustaining the competitiveness of a country without an exchange rate mechanism.

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    Paper provided by Research Department, National Bank of Slovakia in its series Working and Discussion Papers with number WP 6/2008.

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    Length: 43 pages
    Date of creation: Oct 2008
    Handle: RePEc:svk:wpaper:1002
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