IDEAS home Printed from https://ideas.repec.org/p/fiu/wpaper/2201.html
   My bibliography  Save this paper

Inflation Convergence over Time: Sector-Level Evidence within Europe

Author

Listed:
  • Hakan Yilmazkuday

    (Department of Economics, Florida International University)

Abstract

This paper investigates inflation convergence among European countries by using sector-level data for the period between 1997:M1 and 2019:M12. Panel unit root tests at the country-sector level are conducted by using moving windows, which is useful for analyzing changes in inflation convergence and the corresponding speed of convergence over time. The results suggest that there is evidence for inflation convergence for the majority of sectors within Europe, although certain countries have experienced disruptions, especially during the 2008 financial crisis. Regarding the speed of inflation convergence, the average half-life across European countries decreased from about 15 months to about 8 months during the sample period. Important sector-level implications follow for European Union (EU) candidate countries and non-euro EU member countries in regard to the Maastricht Treaty.

Suggested Citation

  • Hakan Yilmazkuday, 2022. "Inflation Convergence over Time: Sector-Level Evidence within Europe," Working Papers 2201, Florida International University, Department of Economics.
    • Handle: RePEc:fiu:wpaper:2201
    as

    Download full text from publisher

    File URL: https://economics.fiu.edu/research/pdfs/2022_working_papers/2201.pdf
    File Function: First version, 2022
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Patrick Honohan & Philip R. Lane, 2003. "Divergent inflation rates in EMU [‘European financial integration and equity returns: a theory-based assessment’]," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 18(37), pages 357-394.
    2. Kocenda, Evzen & Kutan, Ali M. & Yigit, Taner M., 2006. "Pilgrims to the Eurozone: How far, how fast?," Economic Systems, Elsevier, vol. 30(4), pages 311-327, December.
    3. Hashem Pesaran, M., 2007. "A pair-wise approach to testing for output and growth convergence," Journal of Econometrics, Elsevier, vol. 138(1), pages 312-355, May.
    4. Giannellis, Nikolaos, 2013. "Asymmetric behavior of inflation differentials in the euro area: Evidence from a threshold unit root test," Research in Economics, Elsevier, vol. 67(2), pages 133-144.
    5. Fabio Busetti & Lorenzo Forni & Andrew Harvey & Fabrizio Venditti, 2007. "Inflation Convergence and Divergence within the European Monetary Union," International Journal of Central Banking, International Journal of Central Banking, vol. 3(2), pages 95-121, June.
    6. Lopez, Claude & Papell, David H., 2012. "Convergence of Euro area inflation rates," Journal of International Money and Finance, Elsevier, vol. 31(6), pages 1440-1458.
    7. repec:oup:ecpoli:v:18:y:2003:i:37:p:357-394 is not listed on IDEAS
    8. Ulrich Fritsche & Vladimir Kuzin, 2011. "Analysing convergence in Europe using the non-linear single factor model," Empirical Economics, Springer, vol. 41(2), pages 343-369, October.
    9. Brož, Václav & Kočenda, Evžen, 2018. "Dynamics and factors of inflation convergence in the European union," Journal of International Money and Finance, Elsevier, vol. 86(C), pages 93-111.
    10. Hall, Alastair R, 1994. "Testing for a Unit Root in Time Series with Pretest Data-Based Model Selection," Journal of Business & Economic Statistics, American Statistical Association, vol. 12(4), pages 461-470, October.
    11. Kocenda, Evzen & Papell, David H, 1997. "Inflation Convergence within the European Union: A Panel Data Analysis," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 2(3), pages 189-198, July.
    12. repec:oup:ecpoli:v:19:y:2004:i:39:p:347-384 is not listed on IDEAS
    13. Joseph Byrne & Norbert Fiess, 2010. "Euro area inflation: aggregation bias and convergence," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 146(2), pages 339-357, June.
    14. Yazgan, M. Ege & Yilmazkuday, Hakan, 2011. "Price-level convergence: New evidence from U.S. cities," Economics Letters, Elsevier, vol. 110(2), pages 76-78, February.
    15. Juan Carlos Cuestas & Luis A. Gil-Alana & Karl Taylor, 2016. "Inflation convergence in Central and Eastern Europe vs. the Eurozone: Non-linearities and long memory," Scottish Journal of Political Economy, Scottish Economic Society, vol. 63(5), pages 519-538, November.
    16. Charles Engel & John H. Rogers, 2004. "European product market integration after the euro [‘The law of one price in Scandinavian duty-free stores,’]," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 19(39), pages 348-384.
    17. repec:bil:bilpap:0501 is not listed on IDEAS
    18. Nauro F Campos & Corrado Macchiarelli, 2020. "The United Kingdom and the stability of the Euro area: From Maastricht to Brexit," The World Economy, Wiley Blackwell, vol. 43(7), pages 1792-1808, July.
    19. Nauro F Campos & Corrado Macchiarelli, 2020. "Brexit and the Euro," National Institute of Economic and Social Research (NIESR) Discussion Papers 512, National Institute of Economic and Social Research.
    20. Siklos, Pierre L., 2010. "Meeting Maastricht: Nominal convergence of the new member states toward EMU," Economic Modelling, Elsevier, vol. 27(2), pages 507-515, March.
    21. Weber, Axel A. & Beck, Günter W., 2005. "Price stability, inflation convergence and diversity in EMU: Does one size fit all?," CFS Working Paper Series 2005/30, Center for Financial Studies (CFS).
    22. Rogers, John H., 2007. "Monetary union, price level convergence, and inflation: How close is Europe to the USA?," Journal of Monetary Economics, Elsevier, vol. 54(3), pages 785-796, April.
    23. Levin, Andrew & Lin, Chien-Fu & James Chu, Chia-Shang, 2002. "Unit root tests in panel data: asymptotic and finite-sample properties," Journal of Econometrics, Elsevier, vol. 108(1), pages 1-24, May.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Lopez, Claude & Papell, David H., 2012. "Convergence of Euro area inflation rates," Journal of International Money and Finance, Elsevier, vol. 31(6), pages 1440-1458.
    2. Brož, Václav & Kočenda, Evžen, 2018. "Dynamics and factors of inflation convergence in the European union," Journal of International Money and Finance, Elsevier, vol. 86(C), pages 93-111.
    3. Claude Lopez & David H. Papell, 2008. "Testing for Group-Wise Convergence with an Application to Euro Area Inflation," University of Cincinnati, Economics Working Papers Series 2010-03, University of Cincinnati, Department of Economics, revised 2010.
    4. Juan Carlos Cuestas & Luis A. Gil-Alana & Karl Taylor, 2016. "Inflation convergence in Central and Eastern Europe vs. the Eurozone: Non-linearities and long memory," Scottish Journal of Political Economy, Scottish Economic Society, vol. 63(5), pages 519-538, November.
    5. repec:kap:iaecre:v:17:y:2011:i:3:p:315-333 is not listed on IDEAS
    6. Dridi, Jemma & Nguyen, Anh D. M., 2017. "Inflation Convergence In East African Countries," MPRA Paper 80393, University Library of Munich, Germany.
    7. Joseph Byrne & Norbert Fiess, 2010. "Euro area inflation: aggregation bias and convergence," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 146(2), pages 339-357, June.
    8. Giorgio Canarella & Stephen Miller & Stephen Pollard, 2011. "The Global Financial Crisis and Stochastic Convergence in the Euro Area," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 17(3), pages 315-333, August.
    9. Siklos, Pierre L., 2010. "Meeting Maastricht: Nominal convergence of the new member states toward EMU," Economic Modelling, Elsevier, vol. 27(2), pages 507-515, March.
    10. Maurer, Rainer, 2022. "Price levels in the European Monetary Union: Even tradables follow independent random walks," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 81(C).
    11. Mihály Borsi & Norbert Metiu, 2015. "The evolution of economic convergence in the European Union," Empirical Economics, Springer, vol. 48(2), pages 657-681, March.
    12. Garcia-Hiernaux, Alfredo & Gonzalez-Perez, Maria T. & Guerrero, David E., 2023. "Eurozone prices: A tale of convergence and divergence," Economic Modelling, Elsevier, vol. 126(C).
    13. Angelos Liontakis & Christos T. Papadas, 2010. "Distribution Dynamics of Food Price Inflation Rates in EU: An Alternative Conditional Density Estimator Approach," Working Papers 2010-6, Agricultural University of Athens, Department Of Agricultural Economics.
    14. A M Spiru, 2007. "Inflation convergence in the new EU member states," Working Papers 590260, Lancaster University Management School, Economics Department.
    15. Alfredo García Hiernaux & David Esteban Guerrero Burbano, 2015. "Price-Level Convergence in the Eurozone," Documentos de Trabajo del ICAE 2015-05, Universidad Complutense de Madrid, Facultad de Ciencias Económicas y Empresariales, Instituto Complutense de Análisis Económico.
    16. Yilmazkuday, Hakan, 2009. "Inflation Targeting and Inflation Convergence within Turkey," MPRA Paper 16770, University Library of Munich, Germany.
    17. Liontakis, Angelos E. & Papadas, Christos T., 2009. "Distribution Dynamics of Food Price Inflation Rates in EU: An Alternative Conditional Density Estimator Approach," 113th Seminar, September 3-6, 2009, Chania, Crete, Greece 58084, European Association of Agricultural Economists.
    18. Guerreiro, David & Mignon, Valérie, 2013. "On price convergence in Eurozone," Economic Modelling, Elsevier, vol. 34(C), pages 42-51.
    19. Cavallero, Alessandro, 2011. "The convergence of inflation rates in the EU-12 area: A distribution dynamics approach," Journal of Macroeconomics, Elsevier, vol. 33(2), pages 341-357, June.
    20. Oleg Lepekhin, 2024. "Convergence of Regional Food Inflation in Russia," Russian Journal of Money and Finance, Bank of Russia, vol. 83(3), pages 3-22, September.
    21. Aycan HEPSAG, 2017. "Inflation convergence among the next eleven economies: Evidence from asymmetric nonlinear unit root test," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania / Editura Economica, vol. 0(4(613), W), pages 43-52, Winter.

    More about this item

    Keywords

    Inflation Convergence; Half-Life; Sector-Level Analysis; European Union; Euro Area;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • F45 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Macroeconomic Issues of Monetary Unions

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:fiu:wpaper:2201. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sheng Guo (email available below). General contact details of provider: https://edirc.repec.org/data/defiuus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.