Convergence and Cointegration

• Autores: Alfredo Garcia-Hiernaux, David E. Guerrero
• Localización: Documentos de Trabajo (ICAE), ISSN-e 2341-2356, Nº. 22, 2011, págs. 1-27
• Idioma: inglés
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• Resumen

  • This paper provides a new, united, and flexible framework to measure and characterize convergence in prices. We formally define this notion and propose a model to represent a wide range of transition paths that converge to a common steady-state. Our framework enables the econometric measurement of such transi-tional behaviors and the development of testing procedures. Speci¯cally, we derive a statistical test to determine whether convergence exists and, if so, which type: as catching-up or steady-state. The application of this methodology to historic wheat prices results in a novel explanation of the convergence processes experienced during the 19th century.