Converegnce and Benchmark Group

This paper adopts the panel cointegration method to investigate stochastic convergence between OECD economies and the U.S. as well as between Asian economies and Japan. Because demeaning does not eliminate contemporaneous correlation, significant size distortions can occur, resulting in false inference. Hence, efficient estimates of the cointegrating coefficients are needed, and our study applies the Dynamic SUR technique suggested by Mark, et al. (2005) to estimate the long run coefficients in an explicitly stochastic framework. Using DSUR, we do not support stochastic convergence for OECD and for Asian countries. However, the data weakly support the possibility of stochastic convergence between European economies and Germany and demonstrate that estimates are also sensitive to the relevant region and benchmark country.