Inflation convergence in the EMU

Karanasos, M., Koutroumpis, P. ORCID: https://orcid.org/0000-0002-2281-7236, Karavias, Y., Kartsaklas, A. and Arakelian, V. ORCID: https://orcid.org/0000-0001-5261-6948 (2016) Inflation convergence in the EMU. Journal of Empirical Finance, 39 (B). pp. 241-253. ISSN 0927-5398 doi: 10.1016/j.jempfin.2016.07.004

Abstract/Summary

We study the convergence properties of inflation rates among the countries of the European Monetary Union over the period 1980–2013. Recently developed panel unit root/stationarity tests cannot reject the stationarity hypothesis. This implies that some countries have been in the process of converging absolutely or relatively. By using a clustering algorithm we statistically detect three absolute convergence clubs in the pre-euro period, which comprise early accession countries. In particular, Luxembourg clusters with Austria and Belgium, while a second sub-group includes Germany and France and the third The Netherlands and Finland. We also detect two separate clusters of early accession countries in the post-1997 period: a sub-group with Germany, Austria, Belgium and Luxembourg, and one with France and Finland. For the rest of the countries/cases we find evidence of divergent behavior. Robustness is checked by testing pairwise convergence in a Bayesian framework. The outcome broadly confirms our findings.

Item Type	Article
URI	https://centaur.reading.ac.uk/id/eprint/124818
Identification Number/DOI	10.1016/j.jempfin.2016.07.004
Refereed	Yes
Divisions	Henley Business School > Finance and Accounting
Publisher	Elsevier
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