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Output gap and non-linear economic convergence

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  • Beyaert, Arielle
  • García-Solanes, José

Abstract

We apply unit root tests in a multivariate TAR model with bootstrapping simulations to assess the influence of short-run economic conditions on long-run economic convergence and to extract economic policy implications. We use two different groups of countries whose members share important business cycle characteristics over the period 1953–2010. We show that per capita income convergence is not uniform along the business cycle and our analysis reveals that, apart from growth-led actions and structural reforms to avoid the evolution towards different national stationary states – especially within the euro zone – short-run stabilisation policies are vividly advised to guarantee long-run economic convergence.

Suggested Citation

  • Beyaert, Arielle & García-Solanes, José, 2014. "Output gap and non-linear economic convergence," Journal of Policy Modeling, Elsevier, vol. 36(1), pages 121-135.
    • Handle: RePEc:eee:jpolmo:v:36:y:2014:i:1:p:121-135
    DOI: 10.1016/j.jpolmod.2013.11.001
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    References listed on IDEAS

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    1. Beine, Michel & Hecq, Alain, 1998. "Codependence and Convergence in the EC Economies," Journal of Policy Modeling, Elsevier, vol. 20(4), pages 403-426, August.
    2. Salinas-Jimenez, M Mar & Alvarez-Ayuso, Inmaculada & Delgado-Rodriguez, M Jesus, 2006. "Capital accumulation and TFP growth in the EU: A production frontier approach," Journal of Policy Modeling, Elsevier, vol. 28(2), pages 195-205, February.
    3. Camacho, Maximo & Perez-Quiros, Gabriel & Saiz, Lorena, 2006. "Are European business cycles close enough to be just one?," Journal of Economic Dynamics and Control, Elsevier, vol. 30(9-10), pages 1687-1706.
    4. Paul De Grauwe, 2014. "The Governance of a Fragile Eurozone," World Scientific Book Chapters, in: Exchange Rates and Global Financial Policies, chapter 12, pages 297-320, World Scientific Publishing Co. Pte. Ltd..
    5. Arielle Beyaert & Maximo Camacho, 2008. "TAR Panel Unit Root Tests and Real Convergence," Review of Development Economics, Wiley Blackwell, vol. 12(3), pages 668-681, August.
    6. Hamilton, James D, 1989. "A New Approach to the Economic Analysis of Nonstationary Time Series and the Business Cycle," Econometrica, Econometric Society, vol. 57(2), pages 357-384, March.
    7. James Proudman & Stephen Redding & Marco Bianchi, 1997. "Is International Openness associated with faster economic growth?," Bank of England working papers 63, Bank of England.
    8. Maza, Adolfo & Villaverde, José, 2011. "EU regional convergence and policy: Does the concept of region matter?," Journal of Policy Modeling, Elsevier, vol. 33(6), pages 889-900.
    9. Evans, Paul & Karras, Georgios, 1996. "Convergence revisited," Journal of Monetary Economics, Elsevier, vol. 37(2-3), pages 249-265, April.
    10. Maximo Camacho & Gabriel Perez-Quiros & Lorena Saiz & Universidad de Murcia, 2006. "Do european business cycles look like one $\_?$," Computing in Economics and Finance 2006 175, Society for Computational Economics.
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    Cited by:

    1. Javier Ordóñez & Hector Sala & José Silva, 2015. "Real unit labour costs in Eurozone countries: drivers and clusters," IZA Journal of European Labor Studies, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 4(1), pages 1-19, December.
    2. Mihaela Simionescu, 2014. "Testing the Convergence Hypothesis in the European Union," Global Economic Observer, "Nicolae Titulescu" University of Bucharest, Faculty of Economic Sciences;Institute for World Economy of the Romanian Academy, vol. 2(1), pages 222-229, May.
    3. Paulo M.M. Rodrigues & Jorge M. L. G. Andraz, 2015. "A Reappraisal of Eurozone Countries Output Differentials," Economic Bulletin and Financial Stability Report Articles and Banco de Portugal Economic Studies, Banco de Portugal, Economics and Research Department.

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    More about this item

    Keywords

    TAR model; Bootstrapping; Business cycles; Real convergence;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • F02 - International Economics - - General - - - International Economic Order and Integration

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