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Price setting and inflation persistence: did EMU matter?

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Author Info
Ignazio Angeloni
Luc Aucremanne
Matteo Ciccarelli

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Abstract

"Surprisingly not; or at least not directly. Using data on individual consumer prices and on sectoral inflation rates from six euro area countries spanning several years before and after the introduction of the euro, we look at whether EMU has altered the behaviour of price setters and/or the dynamics of inflation. We find no evidence of such change in 1999, when the euro was introduced as an electronic unit of account. At the start of 2002, when the paper currency appeared, the frequency of price adjustments (both upward and downward) increased suddenly, while the average magnitude of price changes fell; both, however, quickly settled back to the earlier patterns. Conversely, we do find evidence of a permanent decline in the persistence of inflation after the mid-1990s. While in principle this could be attributable to the preparation of EMU, this interpretation is put into question by the fact that a similar decline occurred also in the UK and in the US." Copyright CEPR, CES, MSH, 2006.

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File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1468-0327.2006.00161.x
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Publisher Info
Article provided by CEPR, CES, MSH in its journal Economic Policy.

Volume (Year): 21 (2006)
Issue (Month): 46 (04)
Pages: 353-387
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Handle: RePEc:bla:ecpoli:v:21:y:2006:i:46:p:353-387

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References listed on IDEAS
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  1. Ana Lamo & Julián Messina & Etienne Wasmer, 2006. "Are specific skills an obstacle to labor market adjustment? Theory and an application to the EU enlargement," Working Paper Series 585, European Central Bank. [Downloadable!]
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  2. Harald Stahl, 2005. "Price setting in German manufacturing: new evidence from new survey data," Working Paper Series 561, European Central Bank. [Downloadable!]
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  3. Robert J. Tetlow & Peter von zur Muehlen, 2005. "Robustifying learnability," Finance and Economics Discussion Series 2005-58, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
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  4. Michael Ehrmann, 2006. "Rational inattention, inflation developments and perceptions after the euro cash changeover," Working Paper Series 588, European Central Bank. [Downloadable!]
  5. Stephane Dees & Filippo di Mauro & M. Hashem Pesaran & L. Vanessa Smith, 2004. "Exploring the International Linkages of the Euro Area: A Global VAR Analysis," IEPR Working Papers 04.6, Institute of Economic Policy Research (IEPR). [Downloadable!]
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  6. Anindya Banerjee & Josep Lluís Carrion-i-Silvestre, 2006. "Cointegration in Panel Data with Breaks and Cross-Section Dependence," Economics Working Papers ECO2006/5, European University Institute. [Downloadable!]
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Katja Funke & Christiane Nickel, 2006. "Does fiscal policy matter for the trade account? A panel cointegration study," Working Paper Series 620, European Central Bank. [Downloadable!]
  2. Matteo Ciccarelli & Benoît Mojon, 2008. "Global inflation," Working Paper Series WP-08-05, Federal Reserve Bank of Chicago. [Downloadable!]
    Other versions:
  3. Balazs Egert, 2007. "Real Convergence, Price Level Convergence and Inflation Differentials in Europe," William Davidson Institute Working Papers Series wp895, William Davidson Institute at the University of Michigan Stephen M. Ross Business School. [Downloadable!]
    Other versions:
  4. Alberto Musso & Livio Stracca & Dick van Dijk, 2007. "Instability and nonlinearity in the Euro area Phillips curve," Working Paper Series 811, European Central Bank. [Downloadable!]
    Other versions:
  5. Guglielmo Maria Caporale & Alexandros Kontonikas, 2006. "The Euro and Inflation Uncertainty in the European Monetary Union," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
    Other versions:
  6. Francesco Paolo Mongelli & Juan Luis Vega, 2006. "What effects is EMU having on the euro area and its member countries? An overview," Working Paper Series 599, European Central Bank. [Downloadable!]
  7. António Afonso & Vítor Gaspar, 2006. "Excess burden and the cost of inefficiency in public services provision," Working Paper Series 601, European Central Bank. [Downloadable!]
    Other versions:
  8. Stephen G Cecchetti & Richhild Moessner, 2008. "Commodity prices and inflation dynamics," BIS Quarterly Review, Bank for International Settlements, December. [Downloadable!]
  9. Alberto Montagnoli & Andros Gregoriou & Alexandros Kontonikas, 2007. "Euro Area Inflation Differentials: Unit Roots, Structural Breaks and Non-Linear Adjustment," Working Papers 2007_13, Department of Economics, University of Glasgow. [Downloadable!]
  10. Giulio Palomba & Emma Sarno & Alberto Zazzaro, 2009. "Testing similarities of short-run inflation dynamics among EU-25 countries after the Euro," Empirical Economics, Springer, vol. 37(2), pages 231-270, October. [Downloadable!] (restricted)
  11. Philip R. Lane, 2006. "The Real Effects of EMU," The Institute for International Integration Studies Discussion Paper Series iiisdp115, IIIS. [Downloadable!]
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  12. Paolo Vitale, 2006. "A market microstructure analysis of foreign exchange intervention," Working Paper Series 629, European Central Bank. [Downloadable!]
    Other versions:
  13. Andrea Vaona & Guido Ascari, 2007. "Regional Inflation Persistence: Evidence from Italy," Quaderni della facoltà di Scienze economiche dell'Università di Lugano 0807, Biblioteca universitaria di Lugano (University Library of Lugano). [Downloadable!]
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