Inflation Differentials in the EU: A Common ( Factors ) Approach with Implications for EU8 Euro Adoption Prospects
AbstractThis paper explores inflation determinants within the EU and implications for new members' euro adoption plans. Factor analysis partitions observed inflation in EU25 countries into common-origin and country-specific (idiosyncratic) components. Cross-country differences in common-origin inflation within the EU are found to depend on gaps in the initial price level, changes in the nominal effective exchange rate, the quality of institutions, and the economy's flexibility. Idiosyncratic inflation is generally small in magnitude. Nonetheless, the results show that country-specific shocks have systematically pushed down headline inflation, potentially influencing the assessment of compliance with the Maastricht inflation criterion.
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Bibliographic InfoPaper provided by International Monetary Fund in its series IMF Working Papers with number 08/21.
Date of creation: 01 Jan 2008
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This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-03-01 (All new papers)
- NEP-CBA-2008-03-01 (Central Banking)
- NEP-EEC-2008-03-01 (European Economics)
- NEP-MAC-2008-03-01 (Macroeconomics)
- NEP-MON-2008-03-01 (Monetary Economics)
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.:
- Buiter, Willem H, 2005.
"The 'Sense and Nonsense of Maastricht' Revisited: What Have We Learnt About Stabilization In EMU?,"
CEPR Discussion Papers
5405, C.E.P.R. Discussion Papers.
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- Nagayasu, Jun, 2010. "Regional Inflation (Price) Behaviors: Heterogeneity and Convergence," MPRA Paper 25430, University Library of Munich, Germany.
- Nagayasu, Jun, 2011. "Heterogeneity and convergence of regional inflation (prices)," Journal of Macroeconomics, Elsevier, vol. 33(4), pages 711-723.
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