Convergence and Cycles in the Euro Zone

38 Pages Posted: 24 Jan 2005

See all articles by Vasco M. Carvalho

Vasco M. Carvalho

Universitat Pompeu Fabra/CREI; Centre for Economic Policy Research (CEPR); University of Cambridge

Andrew Harvey

University of Cambridge - Department of Applied Economics

Date Written: November 2004

Abstract

Multivariate unobserved components (structural) time series models are fitted to annual post-war observations on real income per capita in countries in the euro zone. The aim is to establish stylized facts about convergence as it relates both to long-run income levels and to cycles. The analysis is based on a new model in which convergence components are combined with a common trend and similar cycles. These convergence components are formulated as a second-order error correction mechanism that ensures that the extracted components change smoothly, thereby giving a clearer decomposition into long-run movements and cycles.

Keywords: Balanced growth, error correction mechanism, Kalman filter, signal extraction, stochastic trend, unobserved components

JEL Classification: C32, O40

Suggested Citation

Carvalho, Vasco M. and Harvey, Andrew, Convergence and Cycles in the Euro Zone (November 2004). Available at SSRN: https://ssrn.com/abstract=648032

Vasco M. Carvalho (Contact Author)

Universitat Pompeu Fabra/CREI ( email )

Ramon Trias Fargas, 25-27
Barcelona, 08005
Spain

HOME PAGE: http://www.crei.cat/people/carvalho/welcome.html

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

University of Cambridge ( email )

Trinity Ln
Cambridge, CB2 1TN
United Kingdom

Andrew Harvey

University of Cambridge - Department of Applied Economics ( email )

Sidgwick Avenue
Cambridge, CB3 9DE
United Kingdom
+44 1223 335 228 (Phone)
+44 1223 335 475 (Fax)

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