Is 2 % the optimal inflation rate for the Euro Area?
AbstractAccording to the relevant literature, monetary policy implications concerning the optimal inflation rate can be derived by examining the relationship between inflation and the Relative Price Variability (RPV). This paper studies this issue for selected Euro Area (EA) countries, using monthly data for the Harmonized Index of Consumer Prices. In particular, semi-parametric estimations are employed so as to find the accurate form of the inflation-RPV relationship. The results indicate that this relationship exhibits a U-shape functional profile. Furthermore, the optimal inflation rates for the EA, France, Germany and Spain are also calculated. For all countries and the EA, we find that although the European Central Bank’s “below but close to 2 %” inflation target is optimal for the EA average, it is not the optimum inflation rate for the individual counties. Copyright Springer-Verlag 2012
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Bibliographic InfoArticle provided by Springer in its journal International Economics and Economic Policy.
Volume (Year): 9 (2012)
Issue (Month): 3 (September)
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Web page: http://www.springerlink.com/link.asp?id=111059
Monetary policy; Relative price variability; Inflation; ECB; E31; C23;
Find related papers by JEL classification:
- E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
- C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
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