European Nominal and Real Convergence: Joint Process or Rival Dynamics?

Recent empirical studies have revealed that the convergence speeds of nominal and real variables are fairly different. This paper studies the temporal evolution of the mutual influence between the convergences of a nominal and of a real variable. It refers first to sigma-convergence analysis. In order to compare nominal and real paths, the evolutions of the cross-sectional variances of the two variables are connected. Then, nominal and real convergence processes are studied, as reciprocally conditioned within the same system. Nominal and real convergence were negatively correlated in the 1980s, while the 1990s have been characterized by a simultaneous convergence movement. Copyright 1997 by Blackwell Publishing Ltd.