The Impact of the European Monetary Union on Inflation Persistence in the Euro Area

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The Impact of the European Monetary Union on Inflation Persistence in the Euro Area

Author Info

Barbara Meller
Dieter Nautz

Abstract

This paper uses the European Monetary Union (EMU) as a natural experiment to investigate whether more effective monetary policy reduces the persistence of inflation. Taking into account the fractional integration of inflation, we confirm that inflation dynamics differed considerably across Euro area countries before the start of EMU. Since 1999, however, results obtained from panel estimation indicate that the degree of long run inflation persistence has converged. In line with theoretical predictions, we find that the persistence of inflation has significantly decreased in the Euro area probably as a result of the more effective monetary policy of the ECB.

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Paper provided by Sonderforschungsbereich 649, Humboldt University, Berlin, Germany in its series SFB 649 Discussion Papers with number SFB649DP2009-037.

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Length: 22 pages
Date of creation: Jul 2009
Date of revision:
Handle: RePEc:hum:wpaper:sfb649dp2009-037

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Find related papers by JEL classification:
C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions
C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data
E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

This paper has been announced in the following NEP Reports:

NEP-ALL-2009-07-17 (All new papers)
NEP-CBA-2009-07-17 (Central Banking)
NEP-EEC-2009-07-17 (European Economics)
NEP-MAC-2009-07-17 (Macroeconomics)
NEP-MON-2009-07-17 (Monetary Economics)

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