Euro area inflation differentials

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Euro area inflation differentials

Author Info

Ignazio Angeloni () (Dipartimento del Tesoro, Ministero dell'Economia e delle Finanze.)
Michael Ehrmann () (Directorate General Research, European Central Bank, Kaiserstrasse, 29, 60311, Frankfurt am Main, Germany.)

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Abstract

We build a stylised 12-country model of the euro area and use it to analyse why differences in national inflation and growth rates arise within the European monetary union. We find that inflation persistence is a key potential explanatory factor. Other more frequently mentioned reasons, like country-specific shocks or differences in the monetary transmission mechanism across countries, count less. We also look at how a monetary policy geared to area-wide average inflation affects these differentials. Our model suggests that area-wide inflation stability and low inflation differentials are complementary.

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Paper provided by European Central Bank in its series Working Paper Series with number 388.

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Length: 45 pages
Date of creation: Sep 2004
Date of revision:
Handle: RePEc:ecb:ecbwps:20040388

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Article
- Ignazio Angeloni & Michael Ehrmann, 2007. "Euro Area Inflation Differentials," The B.E. Journal of Macroeconomics, Berkeley Electronic Press, vol. 7(1). [Downloadable!]

Find related papers by JEL classification:
E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission

This paper has been announced in the following NEP Reports:

NEP-ALL-2005-10-04 (All new papers)
NEP-CBA-2005-10-04 (Central Banking)
NEP-EEC-2005-10-04 (European Economics)
NEP-IFN-2005-10-04 (International Finance)
NEP-MAC-2005-10-04 (Macroeconomics)
NEP-MON-2005-10-04 (Monetary Economics)

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.:

Ignazio Angeloni & Anil K. Kashyap & Benoit Mojon & Daniele Terlizzese, 2003. "The Output Composition Puzzle: A Difference in the Monetary Transmission Mechanism in the Euro Area and U.S," NBER Working Papers 9985, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
Nicoletta Batini & Paul Levine & Joseph Pearlman, 2004. "Indeterminacy with inflation-forecast-based rules in a two-bloc model," International Finance Discussion Papers 797, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
Other versions:
- Nicoletta Batini & Paul Levine & Joseph Pearlman, 2004. "Indeterminacy with inflation-forecast-based rules in a two-bloc model," Working Paper Series 340, European Central Bank. [Downloadable!]
- N. Batini & P. Levine & J. Pearlman, 2003. "Indeterminacy with inflation-forecast-cased rules in a two-bloc model," Proceedings, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
Benigno, Pierpaolo, 2001. "Optimal Monetary Policy in a Currency Area," CEPR Discussion Papers 2755, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
Other versions:
- Benigno, Pierpaolo, 2004. "Optimal monetary policy in a currency area," Journal of International Economics, Elsevier, vol. 63(2), pages 293-320, July. [Downloadable!] (restricted)
Pierpaolo Benigno & J. David Lopez-Salido, 2002. "Inflation persistence and optimal monetary policy in the Euro area," Working Paper Series 178, European Central Bank. [Downloadable!]
Other versions:
- Pierpaolo Benigno & David López-Salido, 2002. "Inflation persistence and optimal monetary policy in the euro area," International Finance Discussion Papers 749, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
- Pierpaolo Benigno & J. David López-Salido, 2002. "Inflation persistence and optimal monetary policy in the Euro Area," Banco de EspaÃ±a Working Papers 0215, Banco de España. [Downloadable!]
- Benigno, Pierpaolo & Lopez-Salido, J. David, 2006. "Inflation Persistence and Optimal Monetary Policy in the Euro Area," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(3), pages 587-614, April. [Downloadable!] (restricted)
Tamim Bayoumi & Barry Eichengreen, 1992. "Shocking Aspects of European Monetary Unification," NBER Working Papers 3949, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
Other versions:
- Bayoumi, Tamim & Eichengreen, Barry, 1992. "Shocking Aspects of European Monetary Unification," CEPR Discussion Papers 643, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
- Tamim Bayoumi and Barry Eichengreen., 1992. "Shocking Aspects of European Monetary Unification," Economics Working Papers 92-187, University of California at Berkeley. [Downloadable!]
Ignazio Angeloni & Anil K. Kashyap & Benoît Mojon & Daniele Terlizzese, 2003. "The output composition puzzle - a difference in the monetary transmission mechanism in the euro area and the US," Working Paper Series 268, European Central Bank. [Downloadable!]
Batini, Nicoletta & Nelson, Edward, 2001. "Optimal horizons for inflation targeting," Journal of Economic Dynamics and Control, Elsevier, vol. 25(6-7), pages 891-910, June. [Downloadable!] (restricted)
Other versions:
- Nicoletta Batini & Edward Nelson, 1999. "Optimal Horizons for Inflation Targeting," Computing in Economics and Finance 1999 1052, Society for Computational Economics. [Downloadable!]
- Batini, Nicoletta & Nelson, Edward, 2000. "Optimal Horizons for Inflation Targeting," Working Paper Series 103, Sveriges Riksbank (Central Bank of Sweden). [Downloadable!]
- Nicoletta Batini & Edward Nelson, . "Optimal horizons for inflation targeting," Bank of England working papers 119, Bank of England. [Downloadable!]
Ignazio Angeloni & Anil K. Kashyap & Benoit Mojon & Daniele Terlizzese, 2003. "Monetary Transmission in the Euro Area: Does the Interest Rate Channel Explain it All?," NBER Working Papers 9984, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
Javier Andrés & Eva Ortega & Javier Vallés, 2003. "Market structure and inflation differentials in the European Monetary Union," Banco de EspaÃ±a Working Papers 0301, Banco de España. [Downloadable!]
Ignazio Angeloni & Günter Coenen & Frank Smets, 2003. "Persistence, the transmission mechanism and robust monetary policy," Working Paper Series 250, European Central Bank. [Downloadable!]
Other versions:
- Frank Smets & Ignazio Angeloni & Gunter Coenen, 2003. "Persistence, the Transmission Mechanism and Robust Monetary Policy," Computing in Economics and Finance 2003 137, Society for Computational Economics.
- Ignazio Angeloni & Gunter Coenen & Frank Smets, 2003. "Persistence, The Transmission Mechanism And Robust Monetary Policy," Scottish Journal of Political Economy, Scottish Economic Society, vol. 50(5), pages 527-549, November. [Downloadable!] (restricted)
Bergin, Paul R., 2003. "A model of relative national price levels under pricing to market," European Economic Review, Elsevier, vol. 47(3), pages 569-586, June. [Downloadable!] (restricted)
Michael Ehrmann & Marcel Fratzscher, 2002. "Interdependence between the euro area and the US: what role for EMU?," Working Paper Series 200, European Central Bank. [Downloadable!]
Other versions:
- M. Ehrmann & M. Fratzscher, 2003. "Interdependence between the Euro area and the U.S.: what role for EMU?," Proceedings, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]

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