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Title: Measuring macroeconomic convergence and divergence within emu using long memory Authors:  Lena Draeger - Leibniz University Hannover (Germany)
Theoplasti Kolaiti - Leibniz University Hannover (Germany) [presenting]
Philipp Sibbertsen - University of Hannover (Germany)
Abstract: Early studies before the start of EMU demonstrate some success in terms of nominal convergence of the member states. In contrast, others use cointegration analysis to demonstrate potential long-run stability problems with respect to macroeconomic dynamics in the so-called periphery countries. The aim is to measure the convergence or divergence of EMU inflation rates and industrial production by using several semiparametric methods to test 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.