Convergence in the trends and cycles of Euro‐zone income

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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 and short‐run movements. A new model, in which convergence components are combined with a common trend and similar cycles, is proposed. The convergence components are formulated as a second‐order error correction mechanism; this ensures that the extracted components change smoothly, thereby enabling them to be separated from transitory cycles. Copyright © 2005 John Wiley & Sons, Ltd.

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