nr 034- Price Convergence in Europe from a Macro Perspective: Product Categories and Reliability
- DNB Working Papers
-
Date 27 April 2005
In an earlier study of ours, we provided evidence of consumer price
level convergence in Europe, particularly in the 1960s and the
1990s (Faber and Stokman, 2004). The analysis was based on
transformations of country HICP indices into absolute price levels,
by combining time series HICP data back to 1960 with nominal
figures of HICP for one particular benchmark year (1999). In this
paper, we demonstrate that this simple procedure delivers reliable
estimates of absolute price levels both for short and longer time
spans. We adopt this methodology to analyse price dispersion at the
onedigit level of HICP in the former EU-15 member states
(1980-2003). We find strong price level convergence for most of the
product groups in the early 1990s. However, price dispersion levels
for tradable products are still much smaller than for non-tradable
products. Compared to the US, the dispersion level of consumer
prices has always been higher in the euro area, but EMU is
narrowing the gap. Price dispersion within the smaller DM-zone is
below American levels. Key words: Economic integration, Price level
convergence, HICP product groups, EMU JEL Classification: E31, E50,
F15, F40