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Cycle and Income-Level Convergence in the EU Countries: An Identification of Turning Points Based on the Hidden Markov Models

Michał Bernardelli, Mariusz Próchniak and Bartosz Witkowski ()
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Michał Bernardelli: SGH Warsaw School of Economics
Mariusz Próchniak: SGH Warsaw School of Economics

Collegium of Economic Analysis Annals, 2017, issue 47, 27-42

Abstract: This paper aims to identify turning points in the economic growth paths of the European Union countries on the basis of the Hidden Markov Models. These turning points are then introduced as structural breaks in the ?-convergence model. Such an approach combines the analysis of cyclical and income-level convergence. Quarterly GDP time series for the whole EU28 group has two turning points (in 2008 and 2013). The hypothesis about the ?-convergence was successfully verified, but the ?-convergence process had a different pace between the turning points, being the slowest (or not even existing) one in the 2008–2012 subperiod, i.e. during the global crisis.

Keywords: catching-up; convergence; hidden Markov model; European Union; Viterbi path (search for similar items in EconPapers)
JEL-codes: C61 E32 O47 O52 (search for similar items in EconPapers)
Date: 2017
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Handle: RePEc:sgh:annals:i:47:y:2017:p:27-42