Citation

Discussion Paper Details

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Title: Convergence and Cycles in the Euro Zone

Author(s): Vasco M Carvalho and Andrew Harvey

Publication Date: November 2004

Keyword(s): balanced growth, error correction mechanism, Kalman filter, signal extraction, stochastic trend and unobserved components

Programme Area(s): International Macroeconomics

Abstract: Multivariate unobserved components (structural) time series models are fitted to annual post-war observations on real income per capita in countries in the euro zone. The aim is to establish stylized facts about convergence as it relates both to long-run income levels and to cycles. The analysis is based on a new model in which convergence components are combined with a common trend and similar cycles. These convergence components are formulated as a second-order error correction mechanism that ensures that the extracted components change smoothly, thereby giving a clearer decomposition into long-run movements and cycles.

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Bibliographic Reference

Carvalho, V and Harvey, A. 2004. 'Convergence and Cycles in the Euro Zone'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=4726