A New Look at Economic Convergence in Europe: A Common Factor Approach

Bettina Becker () and Stephen Hall

Discussion Paper Series from Department of Economics, Loughborough University

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 dataset of nominal and real monthly exchange rates of the twelve member countries of the European Monetary Union over the period 1970-2001. Our empirical results neatly capture the convergence patterns related to the various regimes from Bretton Woods toward 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.

Keywords: Convergence; exchange rates; European Monetary Union; nominal convergence; real convergence; principal components analysis. (search for similar items in EconPapers)
JEL-codes: C22 F31 (search for similar items in EconPapers)
Date: 2007-02, Revised 2007-02
New Economics Papers: this item is included in nep-eec
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Citations: View citations in EconPapers (2)

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Journal Article: A new look at economic convergence in Europe: a common factor approach (2009)
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