Inflation Convergence over Time: Sector-Level Evidence within Europe
36 Pages Posted: 25 Nov 2020 Last revised: 17 Aug 2021
Date Written: August 17, 2021
This paper investigates inflation convergence among European countries by using sector-level data for the period between 1997:M1 and 2019:M12. Panel unit root tests at the country-sector level are conducted by using moving windows, which is useful to analyze changes in inflation convergence and the corresponding speed of convergence over time. The results suggest evidence for inflation convergence for the majority of sectors within Europe, although disruptions have been experienced by certain countries, especially during the 2008 financial crisis. Regarding the speed of inflation convergence, the average half-life across European countries has decreased from about 15 months to about 8 months during the sample period. Important sector-level implications follow for European Union (EU) candidate countries and non-euro EU member countries regarding the Maastricht Treaty.
Keywords: Inflation Convergence, Half-Life, Sector-Level Analysis, European Union, Euro Area
JEL Classification: C32, E31, E58, F45
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