A new look at economic convergence in Europe: a common factor approach

Bettina Becker, Stephen G. Hall

Research output: Contribution to journalArticlepeer-review


We propose a common factor approach to analyse convergence, which we implement using principal components analysis. We show that this method provides a useful new way of approaching the convergence debate. We apply this technique to a data set of monthly exchange rates of the 12 member countries of the European Monetary Union (EMU) over 1970–2001. Our empirical results neatly capture the convergence patterns related to the various regimes from Bretton Woods towards EMU. The UK's Pound Sterling has been on a gradual convergence path to the Euro, although convergence is less progressed than it was for the EMU countries by 1999. Copyright © 2008 John Wiley & Sons, Ltd.
Original languageEnglish
Pages (from-to)85–97
Number of pages13
JournalInternational Journal of Finance and Economics
Issue number1
Early online date9 Jul 2008
Publication statusPublished - Jan 2009


  • convergence
  • exchange rates
  • European Monetary Union
  • nominal convergence
  • real convergence
  • principal components analysis


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