Price Dispersion in the Euro Area: The Case of a Symmetric Oil Price Shock
AbstractThis paper studies the causes of price dispersion in the euro area emerging in response to a shock that hits all member countries symmetrically. We use a panel VAR model which is estimated over the period 1996–2007 to generate impulse responses of a range of price and wage variables to an oil price shock. We split our sample of countries into two disjoint groups according to the impact of the oil price shock on the overall price level. While cross–country heterogeneity in the short–run pass–through can be attributed to different weights of energy items in the consumption basket, heterogeneity in the medium–run response of consumer prices is mainly due to a different response of wages and salaries in the industry sector, which can be attributed to different degrees of price and wage rigidities in the member countries.
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Bibliographic InfoPaper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 2718.
Date of creation: 2009
Date of revision:
pass-through; oil price shock; euro area inflation; heterogeneity; panel VAR model;
Find related papers by JEL classification:
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models
- C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Longitudinal Data; Spatial Time Series
- E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
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