Munich Personal RePEc Archive

Testing for Group-Wise Convergence with an Application to Euro Area Inflation

Lopez, Claude and Papell, David (2010): Testing for Group-Wise Convergence with an Application to Euro Area Inflation.

WarningThere is a more recent version of this item available.
[img]
Preview
PDF
MPRA_paper_20585.pdf

Download (426kB) | Preview

Abstract

We propose a new procedure to increase the power of panel unit root tests when used to study group-wise convergence. When testing for stationarity of the differential between a group of series and their cross-sectional means, although each differential has non-zero mean, the group of differentials has a cross-sectional average of zero for each time period by construction. We incorporate this constraint for estimation and generating finite sample critical values. Applying this new procedure to Euro Area inflation, we find strong evidence of convergence among the inflation rates soon after the implementation of the Maastricht treaty and a dramatic decrease in the persistence of the differential after the occurrence of the single currency.

Available Versions of this Item

UB_LMU-Logo
MPRA is a RePEc service hosted by
the Munich University Library in Germany.