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Measuring Macroeconomic Convergence and Divergence within EMU Using Long Memory

Author

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  • Dräger, Lena
  • Kolaiti, Theoplasti
  • Sibbertsen, Philipp
Abstract
This paper measures the convergence or divergence of EMU inflation rates and industrial production by testing for the existence of fractional cointegration relations. The notion of fractional cointegration allows for long-term equilibria with a higher degree of persistence than allowed for in the standard cointegration framework. We investigate both inflation and industrial production of EMU countries beginning with the introduction of the common currency and including the financial crisis and post-crisis period. Core as well as periphery countries are included in the study. By modelling possible breaks in the persistence structure we find evidence of fractional cointegration as well as a lower persistence before the crisis and a higher persistence by less evidence for fractional cointegration during the crisis. A second break which indicates the end of the crisis can be found as well. In addition, higher inflation persistence can be found for periphery than for core countries.

Suggested Citation

  • Dräger, Lena & Kolaiti, Theoplasti & Sibbertsen, Philipp, 2020. "Measuring Macroeconomic Convergence and Divergence within EMU Using Long Memory," Hannover Economic Papers (HEP) dp-675, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät, revised Feb 2021.
    • Handle: RePEc:han:dpaper:dp-675
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    References listed on IDEAS

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    More about this item

    Keywords

    EMU inflation rates; industrial production; fractional cointegration; persistence breaks;
    All these keywords.

    JEL classification:

    • F15 - International Economics - - Trade - - - Economic Integration
    • F45 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Macroeconomic Issues of Monetary Unions
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models

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