Convergence of Euro area inflation rates

Claude Lopez and David Papell

Journal of International Money and Finance, 2012, vol. 31, issue 6, 1440-1458

Abstract: We study the behavior of inflation rates among the 12 initial Euro countries in order to test whether and when the group convergence initially dictated by the Maastricht treaty and now by the ECB, occurs. We also 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. After the 2008 crisis, Euro area inflation rates follow the ECB's price stability benchmark, although Greece reports relatively higher inflation.

Keywords: Group-wise convergence; Inflation; Euro area (search for similar items in EconPapers)
JEL-codes: C32 E31 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (37)

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Related works:
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:eee:jimfin:v:31:y:2012:i:6:p:1440-1458

DOI: 10.1016/j.jimonfin.2012.02.010

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