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Inflation persistence in structural macroeconomic models (RG10)

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Author Info
Robert-Paul Berben () (Monetary and Economic Policy Department, Bank of the Netherlands,Westeinde 1, P.O. Box 98, 1017 ZN Amsterdam, NL.)
Ricardo Mestre () (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.)
Julian Morgan () (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.)
Theodoros Mitrakos () (Bank of Greece, 21 E.Venizelos Avenue, 10250 Athens, Greece.)
Nikolaos G. Zonzilos () (Bank of Greece, 21 E.Venizelos Avenue, 10250 Athens, Greece.)

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Abstract

This paper analyses the response of inflation in the euro area to five macroeconomic shocks through the use of results derived from Eurosystem large-scale macroeconomic models. The main finding is that only a fiscal shock, and to a lesser extent a TFP shock, generate marked inflation persistence. In contrast, an indirect tax and an oil price shock appear much less persistent and a social security shock generates less inflation persistence in the majority of the countries (although some weak persistence was observed at the euro area level). The paper also considers evidence on the sources of persistence, which indicates that it is crucially affected by the responsiveness of wages to employment, by the sluggishness in the adjustments of the demand components, and by the speed of adjustment of employment to output and wage changes.

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Paper provided by European Central Bank in its series Working Paper Series with number 521.

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Length: 38 pages
Date of creation: Sep 2005
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Handle: RePEc:ecb:ecbwps:20050521

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Related research
Keywords: Inflation persistence large-scale macroeconomic models impulse response function.

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Find related papers by JEL classification:
C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Other Model Applications
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

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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. Julian Benedict Morgan & Alberto Locarno & Jean-Pierre Villetelle & Peter van Els, 2001. "Monetary policy transmission in the Euro area: what do aggregate and national structural models tell us?," Working Paper Series 094, European Central Bank. [Downloadable!]
    Other versions:
  2. Lawrence J. Christiano & Martin Eichenbaum & Charles Evans, 2001. "Nominal Rigidities and the Dynamic Effects of a Shock to Monetary Policy," NBER Working Papers 8403, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  3. Gabriel Fagan & Jérôme Henry & Ricardo Mestre, 2001. "An area-wide model (AWM) for the euro area," Working Paper Series 42, European Central Bank. [Downloadable!]
  4. Julian Benedict Morgan & Peter McAdam, 2001. "The monetary transmission mechanism in the Euro area level: issues and results using structural macroeconomic models (MTN conference paper)," Working Paper Series 093, European Central Bank. [Downloadable!]
  5. Robert-Paul Berben & Alberto Locarno & Julian Morgan & Javier Valles, 2004. "Cross-country differences in monetary policy transmission," Working Paper Series 400, European Central Bank. [Downloadable!]
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  6. Altig, David E & Christiano, Lawrence J. & Eichenbaum, Martin & Lindé, Jesper, 2005. "Firm-Specific Capital, Nominal Rigidities and the Business Cycle," CEPR Discussion Papers 4858, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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Cited by:
(explanations, 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. Luis J. Álvarez & Pablo Burriel & Ignacio Hernando, 2005. "Price setting behaviour in Spain: evidence from micro PPI data," Working Paper Series 522, European Central Bank. [Downloadable!]
  2. Elizaveta Krylova & Jussi Nikkinen & Sami Vähämaa, 2005. "Cross-dynamics of volatility term structures implied by foreign exchange options," Working Paper Series 530, European Central Bank. [Downloadable!]
  3. Luis J. Álvarez & Emmanuel Dhyne & Marco M. Hoeberichts & Claudia Kwapil & Hervé Le Bihan & Patrick Lünnemann & Roberto Sabbatini & Fernando Martins & Harald Stahl & Philip Vermeulen & Jouko Vilmun, 2005. "Sticky prices in the euro area - a summary of new micro evidence," Working Paper Series 563, European Central Bank. [Downloadable!]
    Other versions:
  4. Guido Wolswijk, 2005. "On some fiscal effects on mortgage debt growth in the EU," Working Paper Series 526, European Central Bank. [Downloadable!]
  5. António Afonso, 2005. "Ricardian fiscal regimes in the European Union," Working Paper Series 558, European Central Bank. [Downloadable!]
    Other versions:
  6. Andreas Schabert, 2005. "Discretionary policy, multiple equilibria, and monetary instruments," Working Paper Series 533, European Central Bank. [Downloadable!]
    Other versions:
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