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The long-run convergence of exchange rates and prices in the European Union

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  • John Beirne

Abstract

This paper provides tests of Purchasing Power Parity (PPP) for members of the EU-27 not in the euro area, using multivariate and panel cointegration techniques, for the period since the introduction of the euro currency in 1999 until the end of 2009. The results indicate that long-run PPP holds in ten cases and that domestic prices or the nominal exchange rate is the main driver of the short-run adjustment to stationarity. These results are discussed in terms of monetary convergence in the long-run.

Suggested Citation

  • John Beirne, 2012. "The long-run convergence of exchange rates and prices in the European Union," International Review of Applied Economics, Taylor & Francis Journals, vol. 26(3), pages 367-385, April.
    • Handle: RePEc:taf:irapec:v:26:y:2012:i:3:p:367-385
    DOI: 10.1080/02692171.2011.580266
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    References listed on IDEAS

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    1. repec:lan:wpaper:2466 is not listed on IDEAS
    2. Taylor Mark P. & Sarno Lucio, 2001. "Real Exchange Rate Dynamics in Transition Economies: A Nonlinear Analysis," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 5(3), pages 1-26, October.
    3. R McKinnon, 1991. "Financial Control in the Transition to a Market Economy," CEP Discussion Papers dp0040, Centre for Economic Performance, LSE.
    4. Jan J J Groen & Clare Lombardelli, 2004. "Real exchange rates and the relative prices of non-traded and traded goods: an empirical analysis," Bank of England working papers 223, Bank of England.
    5. repec:lan:wpaper:2387 is not listed on IDEAS
    6. Ivan Paya & David Peel, 2007. "On the relationship between nominal exchange rates and domestic and foreign prices," Applied Financial Economics, Taylor & Francis Journals, vol. 17(2), pages 105-117.
    7. repec:lan:wpaper:2385 is not listed on IDEAS
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