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Price Convergence under EMU? First Estimates

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  • Matthias Lutz

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Abstract

This paper examines whether European monetary union has lowered the degree of price dispersion among member countries. The difference-in-differences methodology is applied to four independent data sets containing prices of identical goods. While the results reported in the paper vary somewhat across goods, they provide little overall support of the European Commission's claim that the single currency would significantly deepen market integration among the euro-zone countries. Even though this should be viewed as preliminary evidence, it does suggest that there are other, more important impediments to market integration in the EU.

Suggested Citation

  • Matthias Lutz, 2003. "Price Convergence under EMU? First Estimates," University of St. Gallen Department of Economics working paper series 2003 2003-08, Department of Economics, University of St. Gallen.
  • Handle: RePEc:usg:dp2003:2003-08
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    References listed on IDEAS

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    1. Friberg, Richard, 2001. "Two monies, two markets?: Variability and the option to segment," Journal of International Economics, Elsevier, vol. 55(2), pages 317-327, December.
    2. Kenneth Rogoff, 1996. "The Purchasing Power Parity Puzzle," Journal of Economic Literature, American Economic Association, vol. 34(2), pages 647-668, June.
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    6. Matthias Lutz, 2002. "Beyond Burgernomics and MacParity: Exchange Rate Forecasts Based on the Law of One Price," 10th International Conference on Panel Data, Berlin, July 5-6, 2002 D4-1, International Conferences on Panel Data.
    7. Michael R. Pakko & Patricia S. Pollard, 1996. "For here or to go? Purchasing power parity and the Big Mac," Review, Federal Reserve Bank of St. Louis, issue Jan, pages 3-22.
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    11. Matthias Lutz, 2004. "Pricing in Segmented Markets, Arbitrage Barriers, and the Law of One Price: Evidence from the European Car Market," Review of International Economics, Wiley Blackwell, vol. 12(3), pages 456-475, August.
    12. McCallum, John, 1995. "National Borders Matter: Canada-U.S. Regional Trade Patterns," American Economic Review, American Economic Association, vol. 85(3), pages 615-623, June.
    13. Frondel, Manuel & Schmidt, Christoph M., 2005. "Evaluating environmental programs: The perspective of modern evaluation research," Ecological Economics, Elsevier, vol. 55(4), pages 515-526, December.
    14. Ernst Fehr & Jean-Robert Tyran, 2001. "Does Money Illusion Matter?," American Economic Review, American Economic Association, vol. 91(5), pages 1239-1262, December.
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    More about this item

    Keywords

    EMU; price convergence; difference-in-differences;

    JEL classification:

    • F15 - International Economics - - Trade - - - Economic Integration
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration

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