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Analysing Convergence in Europe Using a Non-linear Single Factor Model

Ulrich Fritsche () and Vladimir Kuzin ()
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Vladimir Kuzin: German Institute for Economic Research (DIW) Berlin

No 200802, Macroeconomics and Finance Series from Hamburg University, Department Wirtschaft und Politik

Abstract: We investigate convergence in European price level, unit labor cost, income, and productivity data over the period of 1960-2006 using the non-linear time-varying coefficients factor model proposed by Phillips and Sul (2007). This approach is extremely flexible on order to model a large number of transition paths to convergence. We find regional clusters in consumer price level data. GDP deflator data and unit labor cost data are far less clustered than CPI data. Income per capita data indicate the existence of three convergence clubs without strong regional linkages; Italy and Germany are not converging to any of those clubs. Total factor productivity data indicate the existence of a small club including fast-growing countries and a club consisting of all other countries.

Keywords: Price level; Income; Productivity; Convergence; Factor Model; European Monetary Union (search for similar items in EconPapers)
JEL-codes: E31 O47 C32 C33 E37 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-eec, nep-eff, nep-geo and nep-mac
Date: 2008-06
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