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Inflation convergence in the new EU member states

Research output: Working paper

Published
Publication date2007
Place of PublicationLancaster University
PublisherThe Department of Economics
<mark>Original language</mark>English

Publication series

NameEconomics Working Paper Series

Abstract

In this study, the degree of convergence of inflation rates of Central and East European economies to a variety of measures of European norm inflation is assessed using a range of techniques. These include unit root testing based upon panels of data and - an innovation to the pertinent literature - tests of nonlinear convergence. The results suggest that while convergence can be revealed in a number of cases, there is some sensitivity associated with the testing framework, in particular whether time series or panel methods are used. Furthermore, the inflation convergence performance of the CEE countries is conditional on the chosen inflation benchmark, the composition of the panel and the correlations among members. Moreover, by conducting a battery of linearity tests, it is found that nonlinear inflation convergence is virtually ubiquitous for the period that includes the accession of the Central and Eastern European former transition economies into the EU.