(Analyzing The Inflation Convergence for Eurozone Countries with Panel Unit Root Test)

Abstract

Purpose – Purpose of the study is, investigating the existence of inflation convergence for 19 Euro zone countries between 1999-2018. Design/Methodology/Approach – For the Eurozone countries, the presence of convergence is analyzed by panel unit root test with the help of annual change data in consumer price index between 1999-2018. Firstly, the existence of horizontal cross-sectional dependence in the series was examined. After, Hadri-Kurozumi (2012) panel unit root test, one of the second generation unit root tests, was applied. Findings – According to the test results, the hypothesis of zero which assumes that the inflation series is stable is accepted. So the series does not contain unit root. Therefore, it was concluded that inflation converged among the selected country group during the analysis period. Discussion – As a result of the study, it is concluded that inflation rates converge to each other in the analysis period for 19 Euro Area countries. The transition to a common currency has played an important role in the convergence of member states.