Advanced Search
MyIDEAS: Login to save this paper or follow this series

Eurozone inflation differentials and the ECB

Contents:

Author Info

  • PIROVANO, Mara
  • VAN POECK, André

Abstract

This paper presents new evidence on inflation differentials in the Euro Area from different perspectives, and extending the sample including the recent financial crisis. First, we give an informal analysis of the evolution of inflation dispersion and inflation differentials since the start of EMU. Second, we perform formal statistical analyses of the stability properties of inflation differentials in the period 1999-2010. Univariate and multivariate tests reject the null of stability of inflation differentials when conducted over the entire sample period. However, when the financial crisis is excluded, the null of stability is not rejected for the large majority of countries. This finding implies the beginning of a new tendency since the global financial turmoil, and new challenges for the common monetary policy. Finally, we analyze the determinants of inflation differentials, empirically testing a number of theories including price level equalization, productivity differentials, differences in cyclical positions, labor and product market rigidities. We conclude that inflation differentials are not the result of equilibrating, transitory forces, but rather of persistent structural and country-specific factors. This calls for structural reforms in labor and product markets, and countercyclical fiscal policy measures at the individual country level. As inflation differentials pose a serious challenge for the monetary policy of the ECB, we further believe that the ECB should be equipped with additional policy instruments to cope with them in a more direct way.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: https://www.uantwerpen.be/images/uantwerpen/container1244/files/TEW%20-%20Onderzoek/Working%20Papers/RPS/2011/RPS-2011-014.pdf
Download Restriction: no

Bibliographic Info

Paper provided by University of Antwerp, Faculty of Applied Economics in its series Working Papers with number 2011014.

as in new window
Length: 28 pages
Date of creation: Sep 2011
Date of revision:
Handle: RePEc:ant:wpaper:2011014

Contact details of provider:
Postal: Prinsstraat 13, B-2000 Antwerpen
Web page: https://www.uantwerp.be/en/faculties/applied-economic-sciences/
More information through EDIRC

Related research

Keywords: European Monetary Union; Inflation differentials; ECB;

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. John H. Rogers, 2002. "Monetary union, price level convergence, and inflation: how close is Europe to the United States?," International Finance Discussion Papers, Board of Governors of the Federal Reserve System (U.S.) 740, Board of Governors of the Federal Reserve System (U.S.).
  2. Philip R. Lane & Patrick Honohan, 2003. "Divergent Inflation Rates in EMU," Trinity Economics Papers, Trinity College Dublin, Department of Economics 20034, Trinity College Dublin, Department of Economics.
  3. Robert J. Barro & Xavier Sala-i-Martin, 1991. "Convergence across States and Regions," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, Economic Studies Program, The Brookings Institution, vol. 22(1), pages 107-182.
  4. Kocenda, Evzen & Papell, David H, 1997. "Inflation Convergence within the European Union: A Panel Data Analysis," International Journal of Finance & Economics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 2(3), pages 189-98, July.
  5. Denis Kwiatkowski & Peter C.B. Phillips & Peter Schmidt, 1991. "Testing the Null Hypothesis of Stationarity Against the Alternative of a Unit Root: How Sure Are We That Economic Time Series Have a Unit Root?," Cowles Foundation Discussion Papers, Cowles Foundation for Research in Economics, Yale University 979, Cowles Foundation for Research in Economics, Yale University.
  6. Weber, Axel A. & Beck, Günter W., 2005. "Inflation rate dispersion and convergence in monetary and economic unions: lessons for the ECB," CFS Working Paper Series, Center for Financial Studies (CFS) 2005/31, Center for Financial Studies (CFS).
  7. Emil Stavrev, 2008. "What Explains Growth and Inflation Dispersions in EMU?," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, Charles University Prague, Faculty of Social Sciences, vol. 58(01-02), pages 57-67, January.
  8. Consuelo Gámez Amián & Amalia Morales Zumaquero., 2002. "Complete or Partial Inflation Convergence in the EU?," Economic Working Papers at Centro de Estudios Andaluces, Centro de Estudios Andaluces E2002/09, Centro de Estudios Andaluces.
  9. Margarida Duarte, 2003. "The euro and inflation divergence in Europe," Economic Quarterly, Federal Reserve Bank of Richmond, Federal Reserve Bank of Richmond, issue Sum, pages 53-70.
  10. Barro, Robert J & Sala-i-Martin, Xavier, 1992. "Convergence," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 100(2), pages 223-51, April.
  11. Fabio Busetti & Lorenzo Forni & Andrew Harvey & Fabrizio Venditti, 2007. "Inflation Convergence and Divergence within the European Monetary Union," International Journal of Central Banking, International Journal of Central Banking, International Journal of Central Banking, vol. 3(2), pages 95-121, June.
  12. Siklos, Pierre L & Wohar, Mark E, 1997. "Convergence in Interest Rates and Inflation Rates across Countries and over Time," Review of International Economics, Wiley Blackwell, Wiley Blackwell, vol. 5(1), pages 129-41, February.
  13. Canzoneri, Matthew, et al, 2002. "Productivity Trends in Europe: Implications for Real Exchange Rates, Real Interest Rates, and Inflation," Review of International Economics, Wiley Blackwell, Wiley Blackwell, vol. 10(3), pages 497-516, August.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Antonella Cavallo & Antonio Ribba, 2012. "Euro area inflation as a predictor of national inflation rates," Center for Economic Research (RECent), University of Modena and Reggio E., Dept. of Economics 082, University of Modena and Reggio E., Dept. of Economics.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:ant:wpaper:2011014. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Joeri Nys).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.