IDEAS home Printed from https://ideas.repec.org/p/hep/macppr/200904.html
   My bibliography  Save this paper

Do Prices in the EMU Converge (Non-linearly)?

Author

Listed:
  • Ulrich Fritsche

    (Department for Socioeconomics, Department for Economics, University of Hamburg)

  • Sarah Lein

    (Swiss National Bank (SNB))

  • Sebastian Weber

    (German Institute for Economic Research (DIW) Berlin)

Abstract

This paper examines the current state of price convergence amongst the eleven initial EMU member states. Special attention is given to possible changes in the convergence process during the euro cash changeover. We apply the sigma-convergence approach using both panel estimates of changes in the deterministic time trend of a coefficient of variation and stochastic kernel-density estimates. We find that convergence took place before 2000, slowed down substantially between 2000 and 2003, and resurfaced after 2003. This points to a non-linear convergence path. We show that stronger convergence is associated with periods of positive and less-dispersed output gaps across member states. There are no big differences between the results for tradables and non-tradables, indicating that Balassa-Samuelson effects are relatively weak.

Suggested Citation

  • Ulrich Fritsche & Sarah Lein & Sebastian Weber, 2009. "Do Prices in the EMU Converge (Non-linearly)?," Macroeconomics and Finance Series 200904, University of Hamburg, Department of Socioeconomics.
    • Handle: RePEc:hep:macppr:200904
    as

    Download full text from publisher

    File URL: https://www.wiso.uni-hamburg.de/repec/hepdoc/macppr_4_2009.pdf
    File Function: First version, 2009
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Robert Barro & Silvana Tenreyro, 2007. "Economic Effects Of Currency Unions," Economic Inquiry, Western Economic Association International, vol. 45(1), pages 1-23, January.
    2. Andrew K. Rose, 2000. "One money, one market: the effect of common currencies on trade," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 15(30), pages 08-45.
    3. 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.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. 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.
    2. Sophie-Charlotte Meyer & Ronald Schettkat, 2013. "Price Convergence in Euroland. Evidence from micro data without noise," Schumpeter Discussion Papers sdp13005, Universitätsbibliothek Wuppertal, University Library.

    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. Elhanan Helpman & Marc Melitz & Yona Rubinstein, 2008. "Estimating Trade Flows: Trading Partners and Trading Volumes," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 123(2), pages 441-487.
    2. Jong-Wha Lee & Kwanho Shin, 2010. "Exchange Rate Regimes and Economic Linkages," International Economic Journal, Taylor & Francis Journals, vol. 24(1), pages 1-23.
    3. Christian Elleby & Wusheng Yu & Qian Yu, 2018. "The Chinese Export Displacement Effect Revisited," IFRO Working Paper 2018/02, University of Copenhagen, Department of Food and Resource Economics.
    4. Jeffrey A. Frankel & Shang-Jin Wei, 2004. "Managing Macroeconomic Crises," NBER Working Papers 10907, National Bureau of Economic Research, Inc.
    5. Alberto Alesina & Silvia Ardagna & Vincenzo Galasso, 2011. "The Euro and Structural Reforms," Review of Economics and Institutions, Università di Perugia, vol. 2(1).
    6. Maggie Xiaoyang Chen & Aaditya Mattoo, 2008. "Regionalism in standards: good or bad for trade?," Canadian Journal of Economics, Canadian Economics Association, vol. 41(3), pages 838-863, August.
    7. Alberto Alesina & Robert J. Barro & Silvana Tenreyro, 2003. "Optimal Currency Areas," NBER Chapters, in: NBER Macroeconomics Annual 2002, Volume 17, pages 301-356, National Bureau of Economic Research, Inc.
    8. Cardamone, Paola, 2007. "A Survey of the Assessments of the Effectiveness of Preferential Trade Agreements using Gravity Models," Economia Internazionale / International Economics, Camera di Commercio Industria Artigianato Agricoltura di Genova, vol. 60(4), pages 421-473.
    9. Christoph Fischer, 2011. "Currency blocs in the 21st century," Globalization Institute Working Papers 87, Federal Reserve Bank of Dallas.
    10. James E. Anderson & Eric van Wincoop, 2004. "Trade Costs," Journal of Economic Literature, American Economic Association, vol. 42(3), pages 691-751, September.
    11. Bekaert, Geert & Harvey, Campbell R. & Lundblad, Christian T. & Siegel, Stephan, 2013. "The European Union, the Euro, and equity market integration," Journal of Financial Economics, Elsevier, vol. 109(3), pages 583-603.
    12. Arturo Bris & Yrjö Koskinen & Mattias Nilsson, 2009. "The Euro and Corporate Valuations," The Review of Financial Studies, Society for Financial Studies, vol. 22(8), pages 3171-3209, August.
    13. Gabriel, Ricardo Duque & Pessoa, Ana Sofia, 2024. "Adopting the euro: A synthetic control approach," European Journal of Political Economy, Elsevier, vol. 83(C).
    14. Christoph Fischer, 2011. "Currency blocs in the 21st century," Globalization Institute Working Papers 87, Federal Reserve Bank of Dallas.
    15. Adu, Raymond & Litsios, Ioannis & Baimbridge, Mark, 2022. "ECOWAS single currency: Prospective effects on trade," Journal of International Money and Finance, Elsevier, vol. 126(C).
    16. Mr. Etienne B Yehoue, 2005. "On the Pattern of Currency Blocs in Africa," IMF Working Papers 2005/045, International Monetary Fund.
    17. Rahman, Ahmed S., 2010. "Fighting the forces of gravity - Seapower and maritime trade between the 18th and 20th centuries," Explorations in Economic History, Elsevier, vol. 47(1), pages 28-48, January.
    18. Tal Sadeh, 2014. "The euro’s effect on trade," European Union Politics, , vol. 15(2), pages 215-234, June.
    19. repec:zbw:bofitp:2012_024 is not listed on IDEAS
    20. Huang, Chao-Hsi & Yang, Chih-Yuan, 2015. "European exchange rate regimes and purchasing power parity: An empirical study on eleven eurozone countries," International Review of Economics & Finance, Elsevier, vol. 35(C), pages 100-109.
    21. Jayjit Roy, 2014. "On the robustness of the trade-inducing effects of trade agreements and currency unions," Empirical Economics, Springer, vol. 47(1), pages 253-304, August.

    More about this item

    Keywords

    Prices; European Monetary Union; Sigma-convergence; Kernel-density Estimation; Balassa-Samuelson Effect;
    All these keywords.

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • F15 - International Economics - - Trade - - - Economic Integration

    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:hep:macppr:200904. 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: Ulrich Fritsche (email available below). General contact details of provider: https://edirc.repec.org/data/dwuhhde.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.