Has the Euro Shrunk the Band?: Relative Purchasing Power Parity Convergence in a Currency Union

Luca Macedoni

doi:10.1111/sjoe.12417

Has the Euro Shrunk the Band? Relative Purchasing Power Parity Convergence in a Currency Union

Luca Macedoni

Department of Economics and Business Economics

Research output: Contribution to journal/Conference contribution in journal/Contribution to newspaper › Journal article › Research › peer-review

59 Downloads (Pure)

Abstract

I study the effects of entry to the European Monetary Union (EMU) on relative purchasing power parity (PPP) convergence using monthly disaggregated price indices from 32 European countries from 1999 to 2016. I examine the entry of Cyprus, Malta, Slovakia, and Slovenia to the EMU, and I estimate the bands of inaction of relative prices before and after entry using a threshold autoregressive model. I find a positive effect of the EMU on relative PPP convergence: after entry, the bands of inaction with EMU members fell by 17 percent. Cross‐sectional evidence supports the theoretical prediction that bands of inaction are related to transaction costs.

Original language	English
Journal	The Scandinavian Journal of Economics
Volume	123
Issue	2
Pages (from-to)	593-620
Number of pages	28
ISSN	0347-0520
DOIs	https://doi.org/10.1111/sjoe.12417
Publication status	Published - Apr 2021

Keywords

ADJUSTMENT
ARBITRAGE
Arbitrage
COUNTRY PRICE DISPERSION
GRAVITY
INCREASES
LAW
LEVEL CONVERGENCE
MARKET INTEGRATION
THRESHOLD AUTOREGRESSION
TRADE
currency union
euro
relative PPP convergence
threshold autoregressive model

Access to Document

10.1111/sjoe.12417

Macedoni_Has_the_Euro_Shrunk_the_Band_SJE_2021_AMAccepted manuscript, 670 KB

Cite this

@article{7e3b9b03e6234c61a05f765d272f5eab,

title = "Has the Euro Shrunk the Band?: Relative Purchasing Power Parity Convergence in a Currency Union",

abstract = "I study the effects of entry to the European Monetary Union (EMU) on relative purchasing power parity (PPP) convergence using monthly disaggregated price indices from 32 European countries from 1999 to 2016. I examine the entry of Cyprus, Malta, Slovakia, and Slovenia to the EMU, and I estimate the bands of inaction of relative prices before and after entry using a threshold autoregressive model. I find a positive effect of the EMU on relative PPP convergence: after entry, the bands of inaction with EMU members fell by 17 percent. Cross‐sectional evidence supports the theoretical prediction that bands of inaction are related to transaction costs.",

keywords = "ADJUSTMENT, ARBITRAGE, Arbitrage, COUNTRY PRICE DISPERSION, GRAVITY, INCREASES, LAW, LEVEL CONVERGENCE, MARKET INTEGRATION, THRESHOLD AUTOREGRESSION, TRADE, currency union, euro, relative PPP convergence, threshold autoregressive model",

author = "Luca Macedoni",

year = "2021",

month = apr,

doi = "10.1111/sjoe.12417",

language = "English",

volume = "123",

pages = "593--620",

journal = "The Scandinavian Journal of Economics",

issn = "0347-0520",

publisher = "Wiley-Blackwell Publishing Ltd",

number = "2",

}

TY - JOUR

T1 - Has the Euro Shrunk the Band?

T2 - Relative Purchasing Power Parity Convergence in a Currency Union

AU - Macedoni, Luca

PY - 2021/4

Y1 - 2021/4

N2 - I study the effects of entry to the European Monetary Union (EMU) on relative purchasing power parity (PPP) convergence using monthly disaggregated price indices from 32 European countries from 1999 to 2016. I examine the entry of Cyprus, Malta, Slovakia, and Slovenia to the EMU, and I estimate the bands of inaction of relative prices before and after entry using a threshold autoregressive model. I find a positive effect of the EMU on relative PPP convergence: after entry, the bands of inaction with EMU members fell by 17 percent. Cross‐sectional evidence supports the theoretical prediction that bands of inaction are related to transaction costs.

AB - I study the effects of entry to the European Monetary Union (EMU) on relative purchasing power parity (PPP) convergence using monthly disaggregated price indices from 32 European countries from 1999 to 2016. I examine the entry of Cyprus, Malta, Slovakia, and Slovenia to the EMU, and I estimate the bands of inaction of relative prices before and after entry using a threshold autoregressive model. I find a positive effect of the EMU on relative PPP convergence: after entry, the bands of inaction with EMU members fell by 17 percent. Cross‐sectional evidence supports the theoretical prediction that bands of inaction are related to transaction costs.

KW - ADJUSTMENT

KW - ARBITRAGE

KW - Arbitrage

KW - COUNTRY PRICE DISPERSION

KW - GRAVITY

KW - INCREASES

KW - LAW

KW - LEVEL CONVERGENCE

KW - MARKET INTEGRATION

KW - THRESHOLD AUTOREGRESSION

KW - TRADE

KW - currency union

KW - euro

KW - relative PPP convergence

KW - threshold autoregressive model

UR - http://www.scopus.com/inward/record.url?scp=85099080878&partnerID=8YFLogxK

U2 - 10.1111/sjoe.12417

DO - 10.1111/sjoe.12417

M3 - Journal article

SN - 0347-0520

VL - 123

SP - 593

EP - 620

JO - The Scandinavian Journal of Economics

JF - The Scandinavian Journal of Economics

IS - 2

ER -

Has the Euro Shrunk the Band? Relative Purchasing Power Parity Convergence in a Currency Union

Abstract

Keywords

Access to Document

Other files and links

Fingerprint

Cite this