nr 012 - Price Convergence in Europe from a Macro Perspective: Trends and Determinants (1960-2003)

This paper studies the effects of more than 40 years of European integration on prices. Up to now, most empirical research in this area has been micro-based. We follow a macro approach. On the basis of scaled HICP strong evidence is found for price convergence in Europe, especially in the 1960s and 1990s. For the DM zone convergence is found in all decades until the German re-unification. Next to cost convergence, trade and tax harmonization, we demonstrate that exchange rate stability has been an important factor behind this process. Key words: Economic integration, International price dispersions, Price convergence, Law of One Price, EMU, DM zone JEL Classifications: E31, E50, F15, F40