Has the Euro Era Facilitated Inflation Convergence?
نویسنده
چکیده
This paper investigates the long-run convergence of national inflation rates in the European Union. The application of a new test is proposed that involves unit root testing of the first principal component based on national-EU inflation differentials. Using inflation data based on harmonized consumer price indices for 1999-2007, the first principal component is stationary. This suggests that all EU national inflation rates are driven by a single common stochastic trend. Further analysis suggests that the national degrees of persistence with respect to deviations in inflation from long-run equilibrium are varied.
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