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Inflation persistence in structural macroeconomic models (RG10)

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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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Bibliographic Info

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
Date of revision:
Handle: RePEc:ecb:ecbwps:20050521

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

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References

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  1. David Altig & Lawrence Christiano & Martin Eichenbaum & Jesper Linde, 2011. "Firm-Specific Capital, Nominal Rigidities and the Business Cycle," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 14(2), pages 225-247, April.
  2. 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.
  3. Robert-Paul Berben & Alberto Locarno & Julian Morgan & Javier Valles, 2004. "Cross-country differences in monetary policy transmission," Working Paper Series 400, European Central Bank.
  4. Lawrence J. Christiano & Martin Eichenbaum & Charles L. Evans, 2001. "Nominal rigidities and the dynamic effects of a shock to monetary policy," Working Paper Series WP-01-08, Federal Reserve Bank of Chicago.
  5. Layard, Richard & Nickell, Stephen & Jackman, Richard, 1991. "Unemployment: Macroeconomic Performance and the Labour Market," OUP Catalogue, Oxford University Press, number 9780198284345, September.
  6. 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.
  7. Gabriel Fagan & Jérôme Henry & Ricardo Mestre, 2001. "An area-wide model (AWM) for the euro area," Working Paper Series 42, European Central Bank.
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Cited by:
  1. Ales Bulir & Jaromir Hurnik, 2006. "The Maastricht Inflation Criterion: "Saints" and "Sinners"," Working Papers 2006/8, Czech National Bank, Research Department.
  2. Filippo Altissimo & Michael Ehrmann & Frank Smets, 2006. "Inflation persistence and price-setting behaviour in the euro area : a summary of the Inflation Persistence Network evidence," Working Paper Research 95, National Bank of Belgium.
  3. Zoltán M. Jakab & Viktor Várpalotai & Balázs Vonnák, 2006. "How does monetary policy affect aggregate demand? A multimodel approach for Hungary," MNB Working Papers 2006/4, Magyar Nemzeti Bank (the central bank of Hungary).
  4. E. Dhyne, 2005. "Inflation persistence and price-setting in the euro area : results of the Eurosystem Inflation Persistence Network," Economic Review, National Bank of Belgium, issue IV, pages 17-37, December.

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