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How far are we from the single market in Europe? An analysis of price level convergence

Author

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  • Hukkinen, Juhana
  • Virén, Matti E. E.

Abstract

This paper examines price level differences and their evolvement over time across the European Union to find out how far we are from the Single Market that is cornerstone of European integration. The central question is how large these differences are and how they have evolved during the EMU period. This second question gives rise to several related issues: How much does the degree of convergence vary across countries? Has the speed of convergence changed over time? And what factors drive the eventual change and differences in convergence speeds? We find that the average speed of convergence is around 6 per cent. Although this speed has fluctuated over time, it shows no clear long-term trend after the early years of EMU. The convergence parameter appears to be systematically related to certain background variables - most importantly, the overall level of living standards and the size of the initial price level gap. Also, the overall inflation regime makes a difference.

Suggested Citation

  • Hukkinen, Juhana & Virén, Matti E. E., 2026. "How far are we from the single market in Europe? An analysis of price level convergence," BoF Economics Review 2/2026, Bank of Finland.
    • Handle: RePEc:zbw:bofecr:341668
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    Keywords

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    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • P20 - Political Economy and Comparative Economic Systems - - Socialist and Transition Economies - - - General

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