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A new look at economic convergence in Europe: a common factor approach

Bettina Becker () and Stephen Hall ()

International Journal of Finance & Economics, 2009, vol. 14, issue 1, 85-97

Abstract: We propose a common factor approach to analyse convergence, which we implement using principal components analysis. We show that this method provides a useful new way of approaching the convergence debate. We apply this technique to a data set of monthly exchange rates of the 12 member countries of the European Monetary Union (EMU) over 1970-2001. Our empirical results neatly capture the convergence patterns related to the various regimes from Bretton Woods towards EMU. The UK's Pound Sterling has been on a gradual convergence path to the Euro, although convergence is less progressed than it was for the EMU countries by 1999. Copyright © 2008 John Wiley & Sons, Ltd.

Date: 2009
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Working Paper: A New Look at Economic Convergence in Europe: A Common Factor Approach (2007) Downloads
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