Convergence and Cycles in the Euro Zone

Vasco Marques de Carvalho () and Andrew C. Harvey

No 4726, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Multivariate unobserved components (structural) time series models are fitted to annual post-war observations on real income per capita in countries in the euro zone. The aim is to establish stylized facts about convergence as it relates both to long-run income levels and to cycles. The analysis is based on a new model in which convergence components are combined with a common trend and similar cycles. These convergence components are formulated as a second-order error correction mechanism that ensures that the extracted components change smoothly, thereby giving a clearer decomposition into long-run movements and cycles.

Keywords: balanced growth; error correction mechanism; Kalman filter; signal extraction; stochastic trend; unobserved components (search for similar items in EconPapers)
JEL-codes: C32 O40 (search for similar items in EconPapers)
Date: 2004-11
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