Testing for Inflation Convergence: What Do the Data Reveal?

In this study, we examine the inflation performance in three groups of economies, namely the European Monetary Union (EMU), the developed and the developing inflation targeting (IT) economies empirically. Our main and first objective is to detect the improvement or reduction in the average inflation between the pre-and post-inflation targeting (or monetary union) periods. Secondly, we also seek to test the convergence of inflation of three groups of economies over different time frames using panel unit-root tests. Our results reveal that developed and developing IT countries experience larger improvement/reduction in inflation rates on average relative to the EMU countries. Besides, we also detect convergence of inflation in these groups of economies over different time frames.