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On price convergence in Eurozone

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  • David Guerreiro

    (EconomiX - EconomiX - UPN - Université Paris Nanterre - CNRS - Centre National de la Recherche Scientifique)

  • Valérie Mignon

    (EconomiX - EconomiX - UPN - Université Paris Nanterre - CNRS - Centre National de la Recherche Scientifique)

Abstract

We investigate price level convergence with Germany in eleven countries belonging to the Eurozone between January 1970 and July 2011. Relying on smooth transition regression models, we show that the price convergence process is nonlinear, depending on the size of the price differential: for most countries, price convergence occurs only when price differentials with Germany exceed a certain threshold. Moreover, our findings put forward some heterogeneity across the Eurozone members in terms of price convergence speed, that can be explained by the evolution of price-competitiveness, rigidities in labor markets, but also by specialization patterns.

Suggested Citation

  • David Guerreiro & Valérie Mignon, 2011. "On price convergence in Eurozone," Working Papers hal-04140947, HAL.
    • Handle: RePEc:hal:wpaper:hal-04140947
    Note: View the original document on HAL open archive server: https://hal.science/hal-04140947
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    1. repec:wsr:wpaper:y:2013:i:118 is not listed on IDEAS
    2. Marina Glushenkova & Marios Zachariadis, 2014. "Law-of-One-Price Deviations Before and After the Euro: The case of Cyprus," Cyprus Economic Policy Review, University of Cyprus, Economics Research Centre, vol. 8(2), pages 61-85, December.
    3. Guerreiro, David, 2014. "Is the European debt crisis a mere balance of payments crisis?," Economic Modelling, Elsevier, vol. 44(S1), pages 50-56.
    4. Marina Glushenkova & Marios Zachariadis, 2016. "Understanding Post‐Euro Law‐of‐One‐Price Deviations," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 48(6), pages 1073-1111, September.
    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. Ogrokhina, Olena, 2019. "Persistence of prices in the Eurozone capital cities: Evidence from the Economist Intelligence Unit City Data," Economic Modelling, Elsevier, vol. 76(C), pages 330-338.
    7. Konrad Adler & Christian Grisse, 2017. "Thousands of BEERs: Take your pick," Review of International Economics, Wiley Blackwell, vol. 25(5), pages 1078-1104, November.
    8. Bhushan Praveen Jangam & Vaseem Akram, 2019. "Do Prices Converge Among Indonesian Cities? An Empirical Analysis," Bulletin of Monetary Economics and Banking, Bank Indonesia, vol. 22(3), pages 239-262, October.
    9. 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).
    10. Hałka, Aleksandra & Leszczyńska-Paczesna, Agnieszka, 2019. "Price convergence in the European Union – What has changed?," Economic Modelling, Elsevier, vol. 79(C), pages 226-241.
    11. Marina Glushenkova & Marios Zachariadis, 2020. "Understanding post-Crisis price deviations in Europe: Disintegration or mere adjustment?," Empirical Economics, Springer, vol. 58(4), pages 1797-1814, April.
    12. Marie‐Helene Gagnon & Celine Gimet, 2020. "Unconventional economic policies and sentiment: An international assessment," The World Economy, Wiley Blackwell, vol. 43(6), pages 1544-1591, June.

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    More about this item

    Keywords

    price convergence; Eurozone; smooth transition regression models; half-life;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • F15 - International Economics - - Trade - - - Economic Integration
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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