How Wide Are European Borders? New Evidence on the Integration Effects of Monetary Unions

Abstract

Abstract:We use consumer price data for 81 European cities (in Germany, Austria, Switzerland, Italy, Spain and Portugal) to study deviations from the law-of-one-price before and during the European Economic and Monetary Union (EMU) by analysing both aggregate and disaggregate CPI data for 7 categories of goods we find that the distance between cities explains a significant amount of the variation in the prices of similar goods in different locations. We also find that the variation of the relative price is much higher for two cities located in different countries than for two equidistant cities in the same country. Under EMU, the elimination of nominal exchange rate volatility has largely reduced these border effects, but distance and border still matter for intra-European relative price volatility.Keywords: relative price volatility, spatial data, real exchange rate, law of one price, purchasing power parity, stationarity, panel unit root test JEL classification: F40, F41 -2 -

Decentralization and Regional Inflation in Indonesia

“…In general, the phenomenon of inflation convergence in the EU area has not been convincing. A study by Beck and Weber (2001) and also by Holmes (2002) found a convergence rate of inflation after the implementation of the single currency and a common monetary policy in the EU area. Beck and Weber (2001) using the beta and sigma convergence analysis to test regional inflation using sample data 1981-2001.…”

“…A study by Beck and Weber (2001) and also by Holmes (2002) found a convergence rate of inflation after the implementation of the single currency and a common monetary policy in the EU area. Beck and Weber (2001) using the beta and sigma convergence analysis to test regional inflation using sample data 1981-2001. On the other hand, there is also an indication of the divergence in inflation rate after the implementation of single currency in the EU (Honohan andLane, 2003, Busetti et al 2006).…”

European product market integration after the euro

“…Lutz (2002) examines a small set of goods (Big Macs, the Economist, automobiles, and a small survey by UBS with only one post-1999 price survey), and finds that the euro has not reduced price dispersion significantly. Beck and Weber (2001) also examine the effects of the introduction of the euro on price dispersion in Europe, but their data is disaggregated price index data. Boad (2004) uses data on per diem rates to examine border effects in Europe.…”

Inflation Differentials across Regions in Turkey

“…For instance, Siklos and Wohar (1997), Mentz and Sebastian (2003), Rogers, Hufbauer and Wada (2001), Kocenda and Papell (1997), Beck and Weber (2001), Holmes (2002), Beck, Hubrich and Marcellino (2006) and Busetti et al (2007) are among the studies which find evidence in favor of inflation convergence within the EU. This finding is also supported theoretically, as it is consistent with the conventional view that increased trade integration, financial linkages and migration, as well as the introduction of a common monetary system, promote price convergence (Rogers 2007).…”