Price-Level Convergence in the Eurozone


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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 [ Documentos de Trabajo del Instituto Complutense de Análisis Económico (ICAE); nº 05, 2015, ] (Unpublished)

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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
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)
ID Code:30038
Deposited On:11 May 2015 11:38
Last Modified:26 May 2015 12:26

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