Are euro area inflation rates misaligned?

Claude Lopez and David Papell

MPRA Paper from University Library of Munich, Germany

Abstract: We study the behavior of inflation rates among Euro countries. More specifically, we are interested in testing whether and when group convergence dictated by the Maastricht treaty occurs, and we assess the impact of events such as the advent of the Euro and the 2008 financial crisis. Due to the small size of the estimation sample, we propose a new procedure that increases the power of panel unit root tests when used to study group-wise convergence. Applying this new procedure to Euro Area inflation, we find strong and lasting 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. Furthermore, while we find divergence among some of the Euro countries prior to the 2008 financial crisis, the convergence is strengthened after the crisis for all countries except Greece.

Keywords: groupwise convergence; inflation; euro; 2008 crisis (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-eec, nep-mic and nep-mon
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https://mpra.ub.uni-muenchen.de/27929/4/MPRA_paper_27929.pdf original version (application/pdf)
https://mpra.ub.uni-muenchen.de/29280/2/MPRA_paper_29280.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)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:27929

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