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The minimum inflation rate for the euro countries

Author

Listed:
  • Hans-Werner Sinn
  • Michael Reutter

Abstract

Because of the Balassa-Samuelson effect, the countries in the euro area will have very different inflation rates in the future. Regardless of the inflation targets that the European Central Bank sets, there will be countries that fall below or exceed this target. According to our calculations, Germany will be the country with the lowest inflation rate, ca. 1% below the euro inflation rate. If the ECB keeps to its inflation target of 2%, this would mean a 1% inflation rate for Germany, which is below the previous targets of the Bundesbank. It is conjectured that the costs of this policy will be higher for Germany than the possible advantages for high inflation countries such as Ireland, Finland or Spain. Consequently, the ECB should increase its inflation target by one half a percentage point.

Suggested Citation

  • Hans-Werner Sinn & Michael Reutter, 2000. "The minimum inflation rate for the euro countries," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 53(36), pages 23-26, January.
    • Handle: RePEc:ces:ifosdt:v:53:y:2000:i:36:p:23-26
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    More about this item

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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