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Abstract

In this paper we analyze the behavior of relative food prices for a set of 24 European countries observed during the period 1996.1 - 2007.7. Using new methods for analyzing nonstationary panels, we are able to show that relative food prices have a common component which accounts for a large share of their variance. We show that this component has had a greater effects on the group of countries that adopt the Euro. We also find that countries in the Euro area are more market integrated, i.e. food prices tend to converge, than countries that have not adopted the Euro. Finally, we report that the half-live of a shock to relative food prices varies depending on the product, and that the adjustment is generally faster, on average about 10 months, than those usually reported in literature.

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