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In the present paper we study the degree of convergence in the European Union from the Purchasing Power Parity (PPP) point of view. The price of the shopping basket can be the cause of disparities in a global market in construction that, like the European Union, is formed by different countries with different consumption habits. In addition, in this construction process twelve out of fifteen countries of the EU have left its national currency to adopt the Euro like common currency. Therefore, it is necessary for the stability of the Union process in the long run that, among others, purchasing power of the different state members tends towards a same common value. Moreover, the question is whether that process of convergence within the European Union is taking place or not. In order to solve this question, the series of the Absolute Purchasing Power Parity (APPP) are estimated through the suggestion of Rodriguez et al (2004). These authors use the Harmonized Consumer Price Index in the European Union and the nominal exchange rates of the different currencies with euro. Monthly estimates of the APPP series for the 1995-2002 period are obtained for each of the fifteen countries. These figures show, for each country, their relative position to the average value of the European Union. Using these series we applied the Markov Chain methodology to study the time evolution of the distribution of APPP in the European Union. This methodology has been very used by its facility of calculation and interpretation of the results. Nevertheless, with the purpose of obtaining good estimations it is necessary to solve the discretization problem of a continuous variable. This is, to use a finite set, and relatively small number of states, for a variable with infinite values. In the present work different approaches are used to solve the problem. We test for structural change on the estimated probabilities using adapted test to Markov Chains. This allows us to study if an effect exists on the Purchasing Power Parity with the entrance of the Euro. Markov Chains are estimated by Maximum likelihood, and allow us to do different analyses. In the first place, we can study the mobility of the distribution, measured through the probabilities of permanence or not in the same state, and in the degree of diagonal structure of the resulting matrix. This objective can obtained by direct observation, calculating Mobility Index, or using expected time of first passage. Secondly, we can obtain the ergodic or long term distribution. This one shows the temporary evolution in the long run of the distribution, under the hypothesis of maintenance of the present conditions. This distribution would show the possible convergence or not of the whole distribution. We also estimate elasticities of ergodic probabilities, to analyze the effect of each probability in the Markov chain in the long run distribution. Results show differences with the Euro Entry, mobility towards convergence within the distribution is slow, with high elasticities of the ergodic distribution to changes in the transition probabilities.

This paper studies the convergence in the European Union on Purchasing Power Parity. Firstly, we develop a method for the estimation of PPP series and then, we put it into practice and estimate the monthly Purchasing Power Parity for the period January 1995 to July 2003. Secondly, convergence is studied using distribution dynamics from the continuous and discrete approximations. Results show some slow convergence in the European Union. Keywords: Purchasing Power Parity, Convergence, Distribution Dynamics, Markov Chains

In the present paper an index to measure the changes in the Absolute Purchasing Power Parity. in the short term of a group of territories that conform an unique market, using the information of the Harmonized Index of Consumer Prices and the Exchange Rates. This measurement is utilized to study the change in relative prices of the countries of the European Union for the period 1991-2002, and the fulfillment of the theory of the Relative Purchasing Power Parity, taking as a reference the Absolute Purchasing Power Parity in the reference time of the Price Index. The difficulties found to do these comparisons have given rise to multitude of jobs that can be classified in two large groups. In the first group are the efforts focused to find the best instrument to do comparable the figures of the distinct economies. In this line, it is emphasized the use and the advances in the index numbers theory [for a historic revision applied to price index see Diewert, W. (1993), for a theoretical revision see Balk, B. (1995) and Hill, T. (1988)] and the jobs carried out in the International Program of Comparison (ICP), program belonging to the statistical division of United Nations with near 35 years of life, and whose objective is to produce estimations of the National Gross Product and its components, that can be comparable among countries in real terms. It utilizes the concept of Purchasing Power Parity (PPP), [UN (1992)]. In the same line, the European Program of Comparison is developed by Eurostat and the OCDE since 1980. In the second group the investigations based in the unit price law and the theory of of the PPP to explain the behavior of the rate of change among two or more countries. In this case, the objective is focused in the analysis of the economic implications of its fulfillment or not, and how being able to test its fulfillment [Cheung, AND W., Lai, K. (2000), Engel, C. (2000), Reads, M. (1976), Taylor, A. (2001)] This job is inside of the first group of investigations. An index is defined to reflect changes in the Relative Purchasing Power Parity among a group of countries that do not share a common currency. This measurement can be obtained from Harmonized Index of Consumer Prices (HICP), and from the Exchange Rates among the currencies of the distinct countries. The results show the strong distorting effect that exchange rate has upon the Purchasing Power Parity among countries. The evolution of the internal prices of each country is a residual factor to explain the changes in the Purchasing Power Parity. In this sense, the apparition of euro contributes to a clear stability for the consumers whose countries have adopted the euro than those that have not adopted yet. However, in the euro zone systematic behaviours in some of the countries are detected that indicate that, their Purchasing Power Parity is changing in a systematic way, with regard to the average Purchasing Power Parity of the Monetary Union.

The Canary Islands (one of Spain's 17 autonomous communities) is considered in the EC Treaty "ultra-peripheral region" which means: i) differences in the development processes and integration that justify certain specific policies (six out of the seven regions involved are among the poorest in the EU). This is related with remoteness, insularity, small size, difficult topography and climate, and the dependence on a small number of products; ii) the remoteness from the mainland countries and climatic conditions (tropical or subtropical) and, iii) the role of EU frontier and the geographical structure characterized by size and distance. With data of the Survey of Social Conditions (2001) we study the income inequality of individuals in The Canary Islands. Individuals are divided into various subgroups along several dimensions, such as island of residence, age, employment status etc. The difference in inequality between and within the various subgroups is studied using absolute-relative poverty line. We estimate poverty using a subjective approach too, where the level of the poverty line is derived using the opinion of the individual, rich or poor, on poverty. The subjective poverty line used is the Leyden Poverty Line based on subjective questions regarding income and economic welfare.