GIIPS and inflation convergence, two decades and few crisis later

Abstract

Paper analysis inflation convergence in Greece, Italy, Ireland, Portugal and Spain (GIIPS). These countries were severely hit by financial and debt crisis and had to undertake deflationary adjustment programs, thus we wanted to understand weather those conditions reduced imbalances in Eurozone. We used statistical indicators and indicators of s-convergence to study the diversity of their inflation processes. Unit root test on the series of standard deviations of inflation differentials was used to check statistical significance of inflation convergence. Data was divided in two subperiods, from 1997-2008, and 2009-2022, to understand the influence of crisis and austerity measures on asymmetries and divergence of inflation. Results showed significant convergence until the crisis, than differences started to increase. This findings are important while inflation rises since 2021, and it again brought significant divergence between members' inflation rates. Should we fear of a new debt crisis, were the differences sufficiently reduced and imbalances removed?