Discussion paper

DP4726 Convergence and Cycles in the Euro Zone

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.


Harvey, A and V Carvalho (2004), ‘DP4726 Convergence and Cycles in the Euro Zone‘, CEPR Discussion Paper No. 4726. CEPR Press, Paris & London. https://cepr.org/publications/dp4726