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The Minimum Inflation Rate for Euroland

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Author Info
Michael Reutter ()
Hans-Werner Sinn ()

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Abstract

As a result of the Balassa effect relative prices change rapidly between and within the euro countries. Thus it is impossible to find a common monetary policy that will result in price stability in all countries. Based on empirical estimates of the Balassa model, the paper calculates a minimum aggregate inflation rate which is compatible with the requirement that no country face a deflation. This minimum aggeragate inflation rate is 0.94% in the euro-11 countries and 1.13% in an extended Europe which incorporates the east European countries.

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Publisher Info
Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number CESifo Working Paper No. 377.

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Date of creation: 2000
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Handle: RePEc:ces:ceswps:_377

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Related research
Keywords: Inflation target; Balassa-Samuelson effect; ECB;

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Find related papers by JEL classification:
E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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.:

  1. Hans-Werner Sinn & Frank Westermann, 2000. "Two Mezzogiornos," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
    Other versions:
  2. Moulton, Brent R, 1996. "Bias in the Consumer Price Index: What Is the Evidence?," Journal of Economic Perspectives, American Economic Association, vol. 10(4), pages 159-77, Fall. [Downloadable!] (restricted)
  3. Agell, Jonas & Lundborg, Per, 1995. " Theories of Pay and Unemployment: Survey Evidence from Swedish Manufacturing Firms," Scandinavian Journal of Economics, Blackwell Publishing, vol. 97(2), pages 295-307, June.
  4. George A. Akerlof & William R. Dickens & George L. Perry, 1996. "The Macroeconomics of Low Inflation," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 27(1996-1), pages 1-76. [Downloadable!]
  5. Ernst Fehr & Armin Falk, 2003. "Wage Rigidity in a Competitive Incomplete Contract Market," Labor and Demography 0305001, EconWPA. [Downloadable!]
    Other versions:
  6. Canzoneri, Matthew B. & Cumby, Robert E. & Diba, Behzad, 1999. "Relative labor productivity and the real exchange rate in the long run: evidence for a panel of OECD countries," Journal of International Economics, Elsevier, vol. 47(2), pages 245-266, April. [Downloadable!] (restricted)
    Other versions:
  7. Kahneman, Daniel & Knetsch, Jack L & Thaler, Richard, 1986. "Fairness as a Constraint on Profit Seeking: Entitlements in the Market," American Economic Review, American Economic Association, vol. 76(4), pages 728-41, September. [Downloadable!] (restricted)
  8. Bewley, Truman F, 1995. "A Depressed Labor Market as Explained by Participants," American Economic Review, American Economic Association, vol. 85(2), pages 250-54, May. [Downloadable!] (restricted)
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This page was last updated on 2009-11-3.

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