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Regional Price Adjustment in a Monetary Union

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Author Info
Jan Marc Berk () (The Netherlands Bank, and Vrije Universiteit, Amsterdam)
Job Swank (The Netherlands Bank, Amsterdam, and Erasmus University Rotterdam)

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Abstract

Using a New-Keynesian framework, we investigate how far the inflationary processes in member states of EMU cause regional price levels to converge. We fail to produce hard evidence of the present existence of such an adjustment mechanism, notwithstanding that inflation in some countries tends to converge towards the euro area level. Overa11, inflation persistence has declined significantly over the years, but there are still marked differences between countries on this score. We conclude that the euro area is not an optimal currency area yet, lending support to the quest for further structura1 reforms in European labour and product markets.

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Paper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 02-077/2.

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Date of creation: 01 Aug 2002
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Handle: RePEc:dgr:uvatin:20020077

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Related research
Keywords: Inflation; EMU; monetary policy.;

Find related papers by JEL classification:
E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
F02 - International Economics - - General - - - International Economic Order; Noneconomic International Organizations;; Economic Integration and Globalization: General
E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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  2. Andrew Hughes Hallett & Diana N. Weymark, 2001. "The Cost of Heterogeneity in a Monetary Union," Working Papers 0128, Department of Economics, Vanderbilt University. [Downloadable!]
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  3. Aksoy, Yunus & De Grauwe, Paul & Dewachter, Hans, 2002. "Do asymmetries matter for European monetary policy?," European Economic Review, Elsevier, vol. 46(3), pages 443-469, March. [Downloadable!] (restricted)
  4. Leitemo, Kai & Söderström, Ulf, 2001. "Simple Monetary Policy Rules and Exchange Rate Uncertainty," Working Paper Series 122, Sveriges Riksbank (Central Bank of Sweden). [Downloadable!]
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  5. Robert Rich & Joseph Tracy, 2000. "Uncertainty and Labor Contract Durations," NBER Working Papers 7731, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  6. Glenn Rudebusch, 2000. "Assessing Nominal Income Rules for Monetary Policy with Model and Data Uncertainty," Econometric Society World Congress 2000 Contributed Papers 0065, Econometric Society. [Downloadable!]
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  7. Svensson, Lars E.O., 1998. "Open-Economy Inflation Targeting," Seminar Papers 638, Stockholm University, Institute for International Economic Studies. [Downloadable!]
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  8. Taylor, John B, 1980. "Aggregate Dynamics and Staggered Contracts," Journal of Political Economy, University of Chicago Press, vol. 88(1), pages 1-23, February. [Downloadable!] (restricted)
  9. Svensson, Lars E O, 2000. "The Zero Bound in an Open Economy: A Foolproof Way of Escaping from a Liquidity Trap," CEPR Discussion Papers 2566, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  10. Rauf Gönenç & Maria Maher & Giuseppe Nicoletti, 2000. "The Implementation and the Effects of Regulatory Reform: Past Experience and Current Issues," OECD Economics Department Working Papers 251, OECD, Economics Department. [Downloadable!]
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Cited by:
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  1. Maarten Hendrikx & Bryan Chapple, 2002. "Regional Inflation Divergence in the Context of EMU," MEB Series (discontinued) 2002-19, Netherlands Central Bank, Monetary and Economic Policy Department. [Downloadable!]
  2. Ivo J.M. Arnold & Clemens J.M. Kool, 2003. "The Role of Inflation Differentials in Regional Adjustment: Evidence from the United States," Working Papers 04-13, Utrecht School of Economics. [Downloadable!]
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