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García Hiernaux, Alfredo and Guerrero Burbano, David Esteban (2015) Price-Level Convergence in the Eurozone. [ Documentos de Trabajo del Instituto Complutense de Análisis Económico (ICAE); nº 05, 2015, ] (Unpublished)
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Official URL: http://eprints.ucm.es/30038/
Abstract
This paper shows that price level trends in many of the EMU countries evolve with different patterns and that these patterns will not converge in the long-run. We propose that the hypothesis of price convergence should be evaluated and tested employing the relative prices. To this aim, we: (i) define the asymptotic price level convergence in mean and variance, (ii) provide a model for relative price levels that includes a transition path, and (iii) show how to properly test the definitions stated. Our results show that only French and German price levels converge in mean to a zero gap in the EMU while some others, not many, converge to a nonzero significant gap. This should be a matter of concern for the European monetary policy makers as it implies that the monetary policy does not affect all the EMU members equally.
Item Type: | Working Paper or Technical Report |
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Uncontrolled Keywords: | Price convergence; Price levels; Relative price; Inflation; EMU |
Subjects: | Social sciences > European Union > European Economic and Monetary Union Social sciences > Economics > Money Social sciences > Economics > Economic geography |
JEL: | E30, E31, E52, C22, F15 |
Series Name: | Documentos de Trabajo del Instituto Complutense de Análisis Económico (ICAE) |
Volume: | 2015 |
Number: | 05 |
ID Code: | 30038 |
Deposited On: | 11 May 2015 11:38 |
Last Modified: | 26 May 2015 12:26 |
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