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In this study we have examined the inflation convergence hypothesis in the five countries that belong to the East African Community and which recently signed a protocol outlining their plans for launching a monetary union within ten years. We check for common patterns in the persistence in the inflation levels. As it is argued in the literature, countries hoping to form a monetary union should present similar inflation patterns. Our study shows that the inflation rates in these countries present orders of integration equal to higher than one in all cases, confirming that shocks will most certainly not recover in the long run. Moreover, fractional cointegration relationships are also found across all the countries with the exception of Tanzania, suggesting that this country displays a different pattern compared to the remaining four, presenting also some evidence of a break in the data.

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We use fractional integration as a more general approach in order to examine productivity in U.S. manufacturing firms. We find that contrary to the standard analysis based on time trends with I(0) errors, many manufacturing U.S. industries are highly productive with positive productivity shocks causing permanent effects in the series. This implies that for recovery, policy interventions are necessary in these industries in the event of negative shocks.