Explaining Inflation Differentials in the Euro Area: Evidence from a Dynamic Panel Data Model
AbstractWe try to explain the differences in euro area countries’ inflation rates over the period 1999-2006, using a dynamic panel data model. Our results suggest that euro area inflation differentials are partly due to differences in the exposure to exchange rate deviations and oil price shocks. They are also the reflection of remaining cyclical asymmetries amplified by a rather high degree of inflation persistence. On the other hand, “convergence factors”, namely the price convergence process and the Balassa-Samuelson effects, do not seem to have played a key role in driving inflation differentials in the EMU since 1999. We conclude by emphasizing the potential consequences of such long-lasting inflation differentials on diverging trends in relative competitiveness of the EMU member countries.
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Bibliographic InfoArticle provided by CEPII research center in its journal Economie Internationale.
Volume (Year): (2007)
Issue (Month): 112 ()
Inflation differentials; inflation persistence; Economic and Monetary Union (EMU); dynamic panel data models;
Find related papers by JEL classification:
- E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
- 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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- Oral Williams & Kamiar Mohaddes, 2011. "Inflation Differentials in the GCC," IMF Working Papers 11/294, International Monetary Fund.
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