Inflation Differentials in Europe: Past Experience and Future Prospects
AbstractThis paper analyzes past and potential inflation differentials for current EU Member States and the acceding countries. Although inflation differentials decreased significantly over the last ten years or so within the EU-15/EU-12 and the acceding countries, they are still on top of the policy agenda. Indeed there are a number of potential causes of inflation differentials. They range from cyclical factors via the exchange rate pass-through and oil price shocks to differences in productivity advances and changes in indirect taxes. Regarding the impact of these factors on inflation, a number of similarities can be found across countries. At the same time, because differences exist, e.g. in the cyclical position, the degree of openness, oil intensity or dependency as well as price and productivity levels, inflation differentials are not likely to vanish completely in the future. We also argue that the often cited catching-up factors, such as the Balassa-Samuelson effect, seem to be considerably weaker than generally believed. In addition, inflation differentials could be clearly associated with inappropriate national fiscal and structural policies.
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Bibliographic InfoArticle provided by Oesterreichische Nationalbank (Austrian Central Bank) in its journal Monetary Policy & the Economy.
Volume (Year): (2004)
Issue (Month): 1 ()
Postal: Oesterreichische Nationalbank, Documentation Management and Communications Services, Otto-Wagner Platz 3, A-1090 Vienna, Austria
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