Panel data evidence on inflation convergence in the European Union

This letter investigates the extent of long-run inflation convergence among the major EU economies using panel data unit root and cointegration tests. Potentially, these methods have key advantages over time-series methods which, in the light of limited data, can suffer from power deficiency with a tendency to accept the null of non-stationarity or noncointegration. Using monthly inflation data over the period 197299, this study finds that inflation convergence was strongest during 1983-90 whereas the turbulence experienced within in the ERM in the early 1990s conferred some degree of macroeconomic independence among EU members.