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How is real convergence driving nominal convergence in the new EU Member States?

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  • Lein, Sarah M.
  • León-Ledesma, Miguel A.
  • Nerlich, Carolin

Abstract

We evaluate the empirical relevance of real convergence on the process of nominal convergence for the new EU Member States. We focus our discussion on two main channels: productivity growth and increased trade openness. Productivity growth can have a positive effect on price levels via the Balassa-Samuelson effect, whereas increased openness leads to reductions in mark-ups and costs and therefore can have a negative impact on prices. We empirically assess their relevance using a Structural VAR model to which we applied a model reduction algorithm. Our findings show that, in general, openness has had a negative impact and productivity growth a positive one on price level convergence with respect to the euro area.

Suggested Citation

  • Lein, Sarah M. & León-Ledesma, Miguel A. & Nerlich, Carolin, 2008. "How is real convergence driving nominal convergence in the new EU Member States?," Journal of International Money and Finance, Elsevier, vol. 27(2), pages 227-248, March.
  • Handle: RePEc:eee:jimfin:v:27:y:2008:i:2:p:227-248
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    Cited by:

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    2. Zsolt Darvas & György Szapáry, 2008. "Euro Area Enlargement and Euro Adoption Strategies," European Economy - Economic Papers 2008 - 2015 304, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    3. Monfort, Mercedes & Cuestas, Juan Carlos & Ordóñez, Javier, 2013. "Real convergence in Europe: A cluster analysis," Economic Modelling, Elsevier, vol. 33(C), pages 689-694.
    4. Yunus, Nafeesa & Swanson, Peggy E., 2012. "Changing integration of EMU public property markets," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 22(1), pages 194-208.
    5. Ms. Edda Zoli, 2009. "Commodity Price Volatility, Cyclical Fluctuations, and Convergence: What is Ahead for Inflation in Emerging Europe?," IMF Working Papers 2009/041, International Monetary Fund.
    6. TRIANDAFIL, Cristina Maria, 2013. "Sustainability of convergence in the context of macro-prudential policies in the European Union," Working Papers of National Institute for Economic Research 130618, Institutul National de Cercetari Economice (INCE).
    7. Crespo-Cuaresma, Jesús & Fernández-Amador, Octavio, 2013. "Business cycle convergence in EMU: A second look at the second moment," Journal of International Money and Finance, Elsevier, vol. 37(C), pages 239-259.
    8. Karsten Staehr, 2010. "Inflation in the New EU Countries from Central and Eastern Europe : Theories and panel data estimations," Bank of Estonia Working Papers wp2010-06, Bank of Estonia, revised 26 May 2010.
    9. Marjan Senjur, 2010. "Differential inflation, Phillips curves, and price competitiveness in a new euro-member country," Economic Change and Restructuring, Springer, vol. 43(4), pages 253-273, November.
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    11. Bolea, Lucía & Duarte, Rosa & Chóliz, Julio Sánchez, 2018. "From convergence to divergence? Some new insights into the evolution of the European Union," Structural Change and Economic Dynamics, Elsevier, vol. 47(C), pages 82-95.
    12. Philip Haynes & Jonathan Haynes, 2016. "Convergence and Heterogeneity in Euro Based Economies: Stability and Dynamics," Economies, MDPI, vol. 4(3), pages 1-16, August.
    13. Coleman, Simeon, 2010. "Inflation persistence in the Franc zone: Evidence from disaggregated prices," Journal of Macroeconomics, Elsevier, vol. 32(1), pages 426-442, March.
    14. Siklos, Pierre L., 2010. "Meeting Maastricht: Nominal convergence of the new member states toward EMU," Economic Modelling, Elsevier, vol. 27(2), pages 507-515, March.
    15. Adrian Petre, 2016. "The Estimation of the Time Period Required to Achieve Real Economic Convergence between Romania and the Euro Area," Acta Universitatis Danubius. OEconomica, Danubius University of Galati, issue 12(4), pages 305-310, October.
    16. Karsten Staehr, 2010. "Income convergence and inflation in Central and Eastern Europe : does the sun always rise in the East," Bank of Estonia Working Papers wp2010-04, Bank of Estonia, revised 22 Mar 2010.

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    More about this item

    JEL classification:

    • O52 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Europe
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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