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Volume 58, Issue 1 -2

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What Explains Growth and Inflation Dispersions in EMU?

Stavrev, Emil

Year: 2008   Volume: 58   Issue: 1 -2   Pages: 57-67

Abstract: This paper’s analysis of growth and inflation dispersions in the euro area reveals several findings. First, these dispersions have declined appreciably since EMU. Second, the remaining dispersions are small but persistent, relating mainly to country-specific shocks, not differences in the transmission of common shocks. Third, the role of income convergence in explaining the dispersions has increased over time, while the role of price level convergence has declined. However, the increased role of income convergence should be viewed with caution, as it may reflect temporary rather than fundamental convergence factors, which may lead to growing macroeconomic imbalances.

JEL classification: C3, C33, E31, F15, F2

Keywords: common and country-specific shocks, output and inflation dispersions, convergence

RePEc: http://ideas.repec.org/a/fau/fauart/v58y2008i1-2p57-67.html

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