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Has Inflation Persistence Changed under EMU?

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  • Tillmann Peter

    (Justus-Liebig-University Giessen, Giessen, Germany)

Abstract

This paper analyzes the persistence of inflation in the euro area and, in particular, whether the persistence properties have changed since the start of European Monetary Union(EMU). For that purpose, we compare pre- and post-EMU inflation persistence, use rolling-window estimates of persistence, and apply tests specifically designed to detect break dates near the end of the sample period. In contrast to previous research, we find that inflation persistence has fallen significantly since the start of EMU. Persistence of consumer price inflation, which is central to the European Central Bank’s policy mandate, has fallen more than the persistence of deflator inflation. The drop in inflation persistence is consistent with the results from a simulated small New Keynesian model with a shift toward a more aggressive monetary policy stance.

Suggested Citation

  • Tillmann Peter, 2012. "Has Inflation Persistence Changed under EMU?," German Economic Review, De Gruyter, vol. 13(1), pages 86-102, February.
    • Handle: RePEc:bpj:germec:v:13:y:2012:i:1:p:86-102
    DOI: 10.1111/j.1468-0475.2011.00549.x
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    Cited by:

    1. Gerlach, Stefan & Tillmann, Peter, 2012. "Inflation targeting and inflation persistence in Asia–Pacific," Journal of Asian Economics, Elsevier, vol. 23(4), pages 360-373.
    2. Ardakani Omid M. & Kishor N. Kundan, 2018. "Examining the success of the central banks in inflation targeting countries: the dynamics of the inflation gap and institutional characteristics," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 22(1), pages 1-19, February.
    3. Stephen M. Miller & WenShwo Fang & Ozkan Eren, 2012. "Inflation Targeting: Does It Improve Economic Performance?," Working Papers 1207, University of Nevada, Las Vegas , Department of Economics.

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