On the Convergence Among the EU Five Main Countries in A Club Model Under A Memory Hypothesis with Spread Measure

Michele Caputo () and Francesco Forte
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Michele Caputo: Sapienza University of Rome, Italy

Economic Research Guardian, 2015, vol. 5, issue 1, 5-33

Abstract: After an examination of the public choice theory of clubs and of Buchanan theory regarding Governments as club and after the analysis of the theory of convergence for the optimal currency area theory in club perspective, the paper focuses on the EU (European Union) and EMU (Euro-monetary Union) as clubs. On the basis of the modern growth theory, we develop an empirical research on the convergence path, in a new model, under the memory formalism hypothesis, with spread measures, on the 5 EU main countries, with 15 parameters deducted from neoclassical theory of growth and from the EU-EMU rules. The convergence and stability of the 5 main countries in the EU club, France, Germany, Italy, Spain and UK as affected by the EMU club( to which 4 of the 5 countries do belong), is examined, by measuring their 15 teen parametric spreads, from 2003 (first year of normal circulation of Euro) to 2011 ( last year of available official statistics). The convergence with growth actually developed before the great financial fluctuation, in which divergence spread out. Convergence, then, reappeared, but did not last long, because the consolidation policies were not counteracted by appropriate expansionary fiscal policies at the EU level and by timely non conventional expansionary policy. Divergence cum semi stagnation did develop. GDP and unemployment are the dominant parameters, while GDP per capita is the least important. A memory explanation of the paradox is suggested. To assure stability cum growth of the two clubs, one needs monetary and fiscal policy tools coherent with their models, which are already institutionally available. Further integration would face the same issues, in a less free situation.

Keywords: Convergence; Club model; Memory hypothesis; EU (search for similar items in EconPapers)
JEL-codes: D71 (search for similar items in EconPapers)
Date: 2015
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Persistent link: https://EconPapers.repec.org/RePEc:wei:journl:v:5:y:2015:i:1:p:5-33

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