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Price convergence in the European Union and in the New Member States

Author

Listed:
  • Joanna Wolszczak-Derlacz

    (Gdansk University of Technology, Faculty of Management and Economics, Gdańsk, Poland)

  • Rembert De Blander

    (EcRu, Université catholique de Louvain and CES, Louvain-la-Neuve, Belgium)

Abstract

This paper examines price dispersion in the European Union (EU15) and in three New Member States (Poland, Hungary and the Czech Republic) between 1995 and 2006. The research is motivated by the fact that the price convergence problem is at the top of the public agenda in many New Member States (NMS). The analysis utilizes both disaggregate and aggregate price data, including the prices of 157 products and two indices constructed using two different weighting procedures. For each category of goods the price dispersion is lower in EU15 than EU15 plus 3 NMS. Sigma convergence measured as a decline in the standard deviation over time is rejected. Unit root tests reject the validity of the Law of One Price (LOOP) for most of the estimations of indices but confirm the LOOP for individual goods. The half-lives are shorter for NMS than for the EU15.

Suggested Citation

  • Joanna Wolszczak-Derlacz & Rembert De Blander, 2009. "Price convergence in the European Union and in the New Member States," Bank i Kredyt, Narodowy Bank Polski, vol. 40(2), pages 37-59.
    • Handle: RePEc:nbp:nbpbik:v:40:y:2009:i:2:p:37-59
    Note: Joanna Wolszczak-Derlacz acknowledges financial support from the CERGE-EI Foundation under a program of the Global Development Network. The views expressed in the article do not necessarily represent those of CERGE-EI or the GDN.
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    References listed on IDEAS

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    Cited by:

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    2. M. Ege Yazgan & Hakan Yilmazkuday, 2016. "High versus low inflation: implications for price-level convergence," Empirical Economics, Springer, vol. 50(4), pages 1527-1563, June.
    3. Leon Podkaminer, 2010. "Discrepancies between Purchasing Power Parities and Exchange Rates under the Law of One Price: A Puzzle (partly) Explained?," wiiw Working Papers 69, The Vienna Institute for International Economic Studies, wiiw.
    4. Hałka, Aleksandra & Leszczyńska-Paczesna, Agnieszka, 2019. "Price convergence in the European Union – What has changed?," Economic Modelling, Elsevier, vol. 79(C), pages 226-241.
    5. Marina Glushenkova & Marios Zachariadis, 2014. "Understanding Law-of-One-Price Deviations across Europe Before and After the Euro," University of Cyprus Working Papers in Economics 01-2014, University of Cyprus Department of Economics.
    6. Leon Podkaminer, 2013. "Persistent gaps between purchasing power parities and exchange rates under the law of one price: a puzzle (partly) explained?," Bank i Kredyt, Narodowy Bank Polski, vol. 44(4), pages 333-352.

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    More about this item

    Keywords

    price convergence; international price dispersion; law of one price;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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