Economic Convergence in the Euro Area: Coming Together or Drifting Apart?

Jeffrey Franks, Bergljot Barkbu, Rodolphe Blavy, William Oman and Hanni Schoelermann

No 2018/010, IMF Working Papers from International Monetary Fund

Abstract: We examine economic convergence among euro area countries on multiple dimensions. While there was nominal convergence of inflation and interest rates, real convergence of per capita income levels has not occurred among the original euro area members since the advent of the common currency. Income convergence stagnated in the early years of the common currency and has reversed in the wake of the global economic crisis. New euro area members, in contrast, have seen real income convergence. Business cycles became more synchronized, but the amplitude of those cycles diverged. Financial cycles showed a similar pattern: sychronizing more over time, but with divergent amplitudes. Income convergence requires reforms boosting productivity growth in lagging countries, while cyclical and financial convergence can be enhanced by measures to improve national and euro area fiscal policies, together with steps to deepen the single market.

Keywords: WP; euro; fiscal policy; business cycle; exchange rate; Convergence; business cycles; financial cycles; synchronization; Economic and Monetary Union; euro area; Optimum Currency Area; inflation differential; high-inflation country; euro introduction; area trade; area capital flow; area goods trade; common currency; current account; inflation convergence; euro area goods trade; intra-euro area goods trade; higher-inflation country; Personal income; Inflation; Monetary unions; Global (search for similar items in EconPapers)
Pages: 47
Date: 2018-01-23
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Citations: View citations in EconPapers (59)

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