Convergence and Cointegration

Alfredo Garcia-Hiernaux and David Guerrero ()

No 2011-22, Documentos de Trabajo del ICAE from Universidad Complutense de Madrid, Facultad de Ciencias Económicas y Empresariales, Instituto Complutense de Análisis Económico

Abstract: This paper provides a new, uni¯ed, and °exible framework to measure and characterize convergence in prices. We formally de¯ne this notion and propose a model to represent a wide range of transition paths that converge to a common steady-state. Our framework enables the econometric measurement of such transi- tional behaviors and the development of testing procedures. Speci¯cally, we derive a statistical test to determine whether convergence exists and, if so, which type: as catching-up or steady-state. The application of this methodology to historic wheat prices results in a novel explanation of the convergence processes experienced during the 19th century.

Keywords: Price convergence; cointegration; law of one price. (search for similar items in EconPapers)
JEL-codes: C22 C32 F15 N70 (search for similar items in EconPapers)
Pages: 25 pages
Date: 2011
New Economics Papers: this item is included in nep-ecm and nep-ets
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https://eprints.ucm.es/id/eprint/12874/1/1122.pdf June 9, 2011 (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:ucm:doicae:1122

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