Eurozone prices: A tale of convergence and divergence

Alfredo Garcia-Hiernaux, Maria T. Gonzalez-Perez and David E. Guerrero

Economic Modelling, 2023, vol. 126, issue C

Abstract: This study examines the issue of price convergence within the European Monetary Union (EMU). Using a relative price model with transition paths, we investigate the extent to which price convergence occurred in the EMU from 2001 to 2020. Our model identifies and estimates the starting date, shape, and velocity of the convergent and divergent processes. Moreover, we find relative price convergence for over 80% of the EMU economy between 2001 and 2011. Specifically, with respect to Germany, France and Italy showed absolute and relative price convergence, while Spain and Portugal exhibited relative price convergence. However, statistical evidence of price-level divergence appears from 2012 onwards in most cases. This finding suggests that the impact of monetary policy was not uniform across all EMU members, which is particularly relevant for policymakers. Thus, we recommend using this econometric framework to comprehend price transition processes and monitor price stability in a monetary union.

Keywords: Price level convergence; Mean convergence; Inflation; Monetary union (search for similar items in EconPapers)
JEL-codes: C22 C32 E3 E4 E5 (search for similar items in EconPapers)
Date: 2023
References: Add references at CitEc
Citations: View citations in EconPapers (1)

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Working Paper: Eurozone prices: a tale of convergence and divergence (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:126:y:2023:i:c:s0264999323002304

DOI: 10.1016/j.econmod.2023.106418

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