Title: Price convergence in the European Union: What has changed
Authors: Aleksandra Halka - Narodowy Bank Polski (Poland) [presenting]
Agnieszka Leszczynska-Paczesna - Narodowy Bank Polski (Poland)
Abstract: After a period of nominal convergence across EU countries, we have observed a significant weakening of the process in recent years. We explore this change. We use disaggregated price level indices to analyse the price convergence process in European countries in the period of 1999-2016. We estimate the beta and sigma convergence as well as distinguish the main drivers of this process. The results indicate that the cessation of the nominal convergence coincided with the outbreak of the global financial crisis in 2008. For some of the subaggregates in the consumption basket convergence simply declined, but for some other ones a statistically significant divergence seems to have come in place. We believe that the main factor contributing to the slowdown of the convergence process may be the slowdown of the real convergence after 2008, a development not lost on some other authors. This shift in paradigm while particularly pronounced for the old member states (EU15) was also discernible for some new members. Other factors that might have affected the convergence process include the decline in the speed of the deregulation among EU countries after the enlargement in and a downturn in the continued opening of the analysed economies.