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Regional inflation dynamics within and across euro area countries and a comparison with the United States
[‘On the relevance and nature of regional inflation differentials: The case of Spain’, Banco de Espana, Servicio de Estudios n. 9913]

Author

Listed:
  • Guenter W. Beck
  • Kirstin Hubrich
  • Massimiliano Marcellino

Abstract

Inflation differentials across regions of an integrated economy can reflect a proper response to demand and supply conditions, but can also indicate distortions with negative welfare implications. Using a novel dataset of regional inflation rates from six euro area countries, we examine the size and persistence of their differentials and find that they appear to be related to factor market distortions and other structural characteristics, rather than to cyclical and growth dynamics. Our empirical analysis shows that only about half of inflation rates variation is accounted for by area-wide factors such as monetary policy or oil price developments. National factors (such as labour market institutions) still play a very important role, and a regional component accounts for about 18% of inflation variability.— Guenter W. Beck, Kirstin Hubrich and Massimiliano Marcellino

Suggested Citation

  • Guenter W. Beck & Kirstin Hubrich & Massimiliano Marcellino, 2009. "Regional inflation dynamics within and across euro area countries and a comparison with the United States [‘On the relevance and nature of regional inflation differentials: The case of Spain’, Banc," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 24(57), pages 142-184.
    • Handle: RePEc:oup:ecpoli:v:24:y:2009:i:57:p:142-184.
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    File URL: http://hdl.handle.net/10.1111/j.1468-0327.2009.00214.x
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    JEL classification:

    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles

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