Inflation convergence on emerging markets: A club convergence analysis

In addition to being a measure of the cost of living, inflation is an important macroeconomic variable that affects financial markets and all areas of the economy. The effects of inflation spread to other countries through financial markets, globalization, and foreign trade channels. Post-Covid-19, supply shocks and supply chain disruptions affected pricing behavior and created an inflationary environment all over the world, especially in developing countries. This study analyzes the inflation convergence in emerging economies in the post-2008 global financial crisis period using the Phillips-Sul Club Convergence approach. As the inflation variable, annual inflation created by calculating the 12 months change in the monthly consumer price index has been taken into account. The findings show that there is no convergence for the entire panel and that countries form clubs among themselves. Two sub-clubs and one non-converging country club were obtained. The findings also reveal the existence of convergence in 37 out of 53 developing countries analyzed in the study. It is understood that the main determinant of the determinants of inflation convergence is the exchange rate regime applied by the countries. In sum, the study concludes that convergence exists in many of the countries examined in the study. Keywords: Inflation, Developing Countries, Club Convergence, Phillips Sul Convergence Test