Testing for Group-Wise Convergence with an Application to Euro Area Inflation

Claude Lopez and David Papell

MPRA Paper from University Library of Munich, Germany

Abstract: We propose a new procedure to increase the power of panel unit root tests when used to study group-wise convergence. When testing for stationarity of the differential between a group of series and their cross-sectional means, although each differential has non-zero mean, the group of differentials has a cross-sectional average of zero for each time period by construction. We incorporate this constraint for estimation and generating finite sample critical values. Applying this new procedure to Euro Area inflation, we find strong evidence of convergence among the inflation rates soon after the implementation of the Maastricht treaty and a dramatic decrease in the persistence of the differential after the occurrence of the single currency.

Keywords: group wise convergence; inflation; euro (search for similar items in EconPapers)
JEL-codes: C32 E31 (search for similar items in EconPapers)
Date: 2010
New Economics Papers: this item is included in nep-cba, nep-ecm, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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https://mpra.ub.uni-muenchen.de/20585/1/MPRA_paper_20585.pdf original version (application/pdf)
https://mpra.ub.uni-muenchen.de/26092/1/MPRA_paper_26092.pdf revised version (application/pdf)

Related works:
Journal Article: Convergence of Euro area inflation rates (2012)
Working Paper: Convergence of Euro Area Inflation Rates (2011)
Working Paper: Testing for Group-Wise Convergence with an Application to Euro Area Inflation (2010)
Working Paper: Are euro area inflation rates misaligned? (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:20585

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