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Does one monetary policy fit all? the determinants of inflation in EMU countries

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  • Boschi, Melisso
  • Girardi, Alessandro

Abstract

This chapter aims at assessing the long-run determinants and the short-run dynamics of inflation in each country belonging to the European Monetary Union (EMU). Our work complements the recent literature on this topic for the Euro Area as a whole. Detecting such determinants can be crucial in designing structural reforms acting as aside instruments of monetary policy in maintaining price stability. The empirical methodology consists of a reinterpretation of the structural cointegrating VAR approach, which allows for a structural long-run analysis of inflation determinants along with an accurate assessment of its short-run dynamics. The main conclusion emerging from the estimates is that not only the determinants of inflation differ in the countries belonging to the Euro Area, but also that cost-push factors have a considerable role in explaining inflation in most of the countries examined. As a policy implication, a tight monetary policy pursued in those countries whose inflation is mainly driven by costs would result in a contraction of economic activity without exerting relevant effects on price dynamics.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 28554.

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Date of creation: 2005
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Publication status: Published in Current Politics and Economics of Europe 19.1/2(2008): pp. 31-62
Handle: RePEc:pra:mprapa:28554

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Keywords: Inflation; markup; EMU countries; long-run structural VARs; subset VEC models;

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  1. Anindya BANERJEE & Bill RUSSEL, 2002. "A Markup Model for Forecasting Inflation in the Euro AreaI," Economics Working Papers, European University Institute ECO2002/16, European University Institute.
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  4. Melisso Boschi & Alessandro Girardi, 2007. "Euro area inflation: long-run determinants and short-run dynamics," Applied Financial Economics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 17(1), pages 9-24.
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Cited by:
  1. Martina Alexová, 2012. "Inflation drivers in new EU members," Working and Discussion Papers, Research Department, National Bank of Slovakia WP 6/2012, Research Department, National Bank of Slovakia.

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