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Regional price adjustment in a monetary union: the case of EMU

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  • Berk, J.M

    (Vrije Universiteit Amsterdam, Faculteit der Economische Wetenschappen en Econometrie (Free University Amsterdam, Faculty of Economics Sciences, Business Administration and Economitrics)

  • Swank, J.

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 evidente of the present existence of such an adjustment mechanism, not-withstanding that inflation in some countries tends to converge towards the euro area level. Overall, 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 structural reforms in European labour and product markets.

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Bibliographic Info

Paper provided by VU University Amsterdam, Faculty of Economics, Business Administration and Econometrics in its series Serie Research Memoranda with number 0016.

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Date of creation: 2002
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Handle: RePEc:dgr:vuarem:2002-16

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Web page: http://www.feweb.vu.nl

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Keywords: Inflation; EMU; monetary policy;

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  1. 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.
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  3. Hughes Hallett, Andrew & Weymark, Diana, 2002. "The Cost of Heterogeneity in a Monetary Union," CEPR Discussion Papers 3223, C.E.P.R. Discussion Papers.
  4. Svensson, Lars, 2000. "The Zero Bound in an Open Economy: A Foolproof Way of Escaping from a Liquidity Trap," Seminar Papers 687, Stockholm University, Institute for International Economic Studies.
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  7. Robert Rich & Joseph Tracy, 2000. "Uncertainty and Labor Contract Durations," NBER Working Papers 7731, National Bureau of Economic Research, Inc.
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  10. Rauf Gönenç & Maria Maher & Giuseppe Nicoletti, 2001. "The Implementation and the Effects of Regulatory Reform: Past Experience and Current Issues," OECD Economic Studies, OECD Publishing, vol. 2001(1), pages 11-98.
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Cited by:
  1. Afflatet, Nicolas, 2014. "European Monetary Policy in the Heterogeneous Currency Area and the Open Question of Convergence," EconStor Preprints 93382, ZBW - German National Library of Economics.
  2. Ivo J. M. Arnold & Jan J.G. Lemmen, 2006. "Inflation Expectations and Inflation Uncertainty in the Eurozone: Evidence from Survey Data," CESifo Working Paper Series 1667, CESifo Group Munich.
  3. Andersson, Malin & Masuch, Klaus & Schiffbauer, Marc, 2009. "Determinants of inflation and price level differentials across the euro area countries," Working Paper Series 1129, European Central Bank.
  4. Constantinos Alexiou, 2011. "“When the Bough Breaks” Making Sense of the Greek Economic ‘Waterloo’," International Journal of Economics and Financial Issues, Econjournals, vol. 1(3), pages 123-132, September.
  5. Giorgio Canarella & Stephen Miller & Stephen Pollard, 2011. "The Global Financial Crisis and Stochastic Convergence in the Euro Area," International Advances in Economic Research, Springer, vol. 17(3), pages 315-333, August.
  6. Hanan Morsy & Florence Jaumotte, 2012. "Determinants of Inflation in the Euro Area," IMF Working Papers 12/37, International Monetary Fund.

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