Inflation and Productivity in Europe: An Empirical Investigation |
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Authors: | Efthymios G Tsionas |
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Institution: | (1) Department of Economics, Athens University of Economics and Business and IMOP, 76 Patission Street, 10434 Athens, Greece |
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Abstract: | Motivated by the ``Maastricht proposition' that nominal convergence will generate significant real benefits, the paper investigates the inflation-productivity nexus in fifteen European countries over the period 1960–1997. Modern econometric techniques organised around I(1) and cointegration analysis are used to test for the existence of a long-run relationship between inflation and productivity. Bayesian and recently developed causality testing procedures are employed to examine the inflation-productivity relationship. The empirical results suggest the existence of causality in seven countries. Causality is bi-directional in five cases. Notably, causality fails exactly where the ``Maastricht proposition' would be more useful: The European South and the smaller member states of the Union. |
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Keywords: | Bayesian analysis Causality cointegration inflation productivity unit roots vector autoregressions |
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