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Euro Area Inflation: Aggregation Bias and Convergence

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  • Joseph P. Byrne
  • Norbert Fiess

Abstract

EMU monetary policy targets aggregate Euro Area inflation. Concerns are growing that a focus on aggregate inflation may cause national inflation rates to diverge. While different explanations for diverging aggregate Euro Area inflation have been brought forward, the very impact of aggregation on divergence has however not been studied. We find a striking difference in convergence depending on the level of aggregation. While aggregate national inflation rates are diverging, disaggregate inflation rates are converging. We find that aggregation appears to bias evidence towards non-convergence. Our results are consistent with prominent theoretical and empirical evidence on aggregation bias

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Bibliographic Info

Paper provided by Business School - Economics, University of Glasgow in its series Working Papers with number 2007_41.

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Date of creation: Oct 2007
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Handle: RePEc:gla:glaewp:2007_41

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Keywords: Euro Area Inflation; Aggregation Bias; Convergence;

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Cited by:
  1. Sondermann, David, 2012. "Productivity in the euro area: any evidence of convergence?," Working Paper Series 1431, European Central Bank.
  2. Ismail H. GENC & Anil RUPASINGHA, 2009. "Time-series Tests of Stochastic Earnings Convergence across US Nonmetropolitan Counties, 1969-2004," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 9(2).
  3. Michal Franta & Branislav Saxa & Kateøina Šmídková, 2010. "The Role of Inflation Persistence in the Inflation Process in the New EU Member States," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 60(6), pages 480-500, December.

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