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Journal of Economic Integration 2012 December;27(4) :609-632.
Is Price Dynamics Homogeneous Across Eurozone Countries?

David Guerreiro1 Marc Joëts 1 and Valérie Mignon 2

1University of Paris Ouest, EconomiX-CNRS
2University of Paris Ouest, EconomiX-CNRS and CEPII
Corresponding Author: David Guerreiro ,Tel: +33 (0)1 40 97 58 60, Fax: +33 (0)1 40 97 77 84, Email:
Copyright ©2012 Journal of Economic Integration
The aim of this paper is to investigate whether price dynamics is homogeneous across the Eurozone countries. Relying on monthly data over the January 1970~July 2011 period, we test for the absolute purchasing power parity (PPP) hypothesis through the implementation of second and third-generation panel unit root and cointegration tests. Our results show that price dynamics are heterogeneous depending on both the time period and the considered group of countries. More specifically, while PPP is validated for the core Economic Monetary Union (EMU) countries, this hypothesis does not hold for Northern peripheral economies. Turning to the Southern countries, PPP is observed only before the launch of the euro.

JEL Classification
C23: Models with Panel Data; Longitudinal Data; Spatial Time Series
E31: Price Level; Inflation; Deflation
F15: Economic Integration
Keywords: Price Convergence | Eurozone | Panel Unit Root Tests | Half-Life.
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