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We analyse monthly data on six European industrial production series to ascertain the presence of common cycles and trends. Particular attention is paid to the exchange rate regime, with the Bretton Woods and Exchange Rate Mechanism (ERM) regimes being analysed separately. We employ recently developed techniques in vector autoregressive (VAR) modelling (a) to test for and estimate both common trends and common cycles, (b) to estimate VAR models subject to these 'common feature' restrictions, (c) to compare and contrast these models with those obtained from an alternative approach, that of estimating unrestricted levels VAR models, and (d) to present a permanent–transitory decomposition of the series that is based on the common trends found in the systems. We find limited evidence of convergence during the ERM, and this is of a long‐run nature. In the short run, asymmetric shocks seem to have produced a divergence compared with the earlier Bretton Woods regime. There is also some evidence of German 'leadership' over Belgium, France and the Netherlands.

This paper contains an econometric analysis of international convergence in growth allowing for the possibility of several trend breaks. The results offer further evidence against strong hypotheses of convergence but demonstrate the existence of common trends among subsets of countries. Trend growth estimates for OECD countries have fallen since the early post‐war period when catch‐up was strong, but nevertheless are generally higher than before the Second World War. Taking these results together with evidence from historical research, it is argued that the recent growth slowdown should not be seen as sufficient reason to reject the hypothesis of endogenous growth.

David Greasley and Les Oxley provide an interesting but ultimately unconvincing chalenge to the perspective on the British Industrial Revolution that we have set out in recent articles1. We believe that the issues that they raise are important and deserve a full response. Thus, we take the opportunity to clarify ideas on growth theory and its implications for growth accounting, to review the econometrics of estimating trend growth in an economy undergoing structural change, and to reconsider the persuasiveness of different views of the nature of technological change in the eighteenth and nineteenth centuries.