Euro area inflation as a predictor of national inflation rates
AbstractThe stability of inflation differentials is an important condition for the smooth working of a currency area, such as the European Economic and Monetary Union. In the presence of stability, changes in national inflation rates, while holding Euro-area inflation fixed contemporaneously, should be only transitory. If this is the case, the rate of inflation of the whole area can also be interpreted as a predictor, at least in the long run, of the different national inflation rates. However, in this paper we show that this condition is satisfied only for a small number of countries, including France and Italy. Better convergence results for inflation differentials are, instead, found for the USA.
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Bibliographic InfoPaper provided by University of Modena and Reggio E., Dept. of Economics in its series Center for Economic Research (RECent) with number 082.
Length: pages 26
Date of creation: May 2012
Date of revision:
Inflation differentials; euro area; structural Cointegrated VARs; permanent-transitory decompositions;
Find related papers by JEL classification:
- E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-06-25 (All new papers)
- NEP-CBA-2012-06-25 (Central Banking)
- NEP-EEC-2012-06-25 (European Economics)
- NEP-MAC-2012-06-25 (Macroeconomics)
- NEP-MON-2012-06-25 (Monetary Economics)
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