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Inflation convergence after the introduction of the Euro

  • Mentz, Markus
  • Sebastian, Steffen P.
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    Using the Johansen test for cointegration, we examine to which extent inflation rates in the Euro area have converged after the introduction of a single currency. Since the assumption of non-stationary variables represents the pivotal point in cointegration analyses we pay special attention to the appropriate identification of non-stationary inflation rates by the application of six different unit root tests. We compare two periods, the first ranging from 1993 to 1998 and the second from 1993 to 2002 with monthly observations. The Johansen test only finds partial convergence for the former period and no convergence for the latter.

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    File URL: http://econstor.eu/bitstream/10419/25397/1/373541554.PDF
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    Paper provided by Center for Financial Studies (CFS) in its series CFS Working Paper Series with number 2003/30.

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    Date of creation: 2003
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    Handle: RePEc:zbw:cfswop:200330
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    1. Perron, P. & Ng, S., 1994. "Useful Modifications to Some Unit Root Tests with Dependent Errors and Their Local Asymptotic Properties," Cahiers de recherche 9427, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
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    3. Siklos, Pierre L & Wohar, Mark E, 1997. "Convergence in Interest Rates and Inflation Rates across Countries and over Time," Review of International Economics, Wiley Blackwell, vol. 5(1), pages 129-41, February.
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    5. Mark Holmes, 1998. "Inflation Convergence in the ERM: Evidence for Manufacturing and Services," International Economic Journal, Taylor & Francis Journals, vol. 12(3), pages 1-16.
    6. Phillips, P C B, 1987. "Time Series Regression with a Unit Root," Econometrica, Econometric Society, vol. 55(2), pages 277-301, March.
    7. Osterwald-Lenum, Michael, 1992. "A Note with Quantiles of the Asymptotic Distribution of the Maximum Likelihood Cointegration Rank Test Statistics," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 54(3), pages 461-72, August.
    8. Serena Ng & Pierre Perron, 1997. "Lag Length Selection and the Construction of Unit Root Tests with Good Size and Power," Boston College Working Papers in Economics 369, Boston College Department of Economics, revised 01 Sep 2000.
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    15. Rodney Thom, 1995. "Inflation convergence in the EMS: Some additional evidence. A comment," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 131(3), pages 577-586, September.
    16. Johansen, Soren, 1995. "Likelihood-Based Inference in Cointegrated Vector Autoregressive Models," OUP Catalogue, Oxford University Press, number 9780198774501, March.
    17. Westbrook, Jilleen R, 1998. "Monetary Integration, Inflation Convergence and Output Shocks in the European Monetary System," Economic Inquiry, Western Economic Association International, vol. 36(1), pages 138-44, January.
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