Inflation and Supply Shocks in Spain: A Regional Approach
AbstractThis paper analyses the effects of supply shocks on the Spanish inflation rate. Our goal is to determine if there is a homogeneous behaviour across regions with regard to that issue or if, on the contrary, there are regions more inflationary than others. In this sense, this paper tries to throw some light on the causes of the recent increase in the Spanish inflation rate and the relation of this fact with the evolution of oil prices. The methodology applied is based on the seminal paper of Ball and Mankiw (1995). Those authors assume that a good proxy for supply shocks is the third moment of the distribution of changes in relative prices, and show that for no trend inflation regimes the presence of nominal rigidities, like menu costs, implies a positive relationship between inflation and skewness -i.e., the supply shocks-, that is magnified by the variance of the distribution. In order to achieve these goals, we have chosen the 1993-2005 period, given that it fulfils the features required to apply the methodology above mentioned. The data used are the monthly consumer price indexes of each region, disaggregated in 57 categories. As a first stage, we have checked that the skewness of the distribution of changes in relative prices is a good proxy for supply shocks. After that, the relationship between inflation and the higher moments of the distribution is estimated. Moreover, control variables as interest rates and unemployment rates have been introduced. The analysis has been carried out in two ways. On one hand, each region is analysed separately and, on the other hand, we have used panel data techniques in order to test homogeneity across regions. Our results point out that Spanish regions show a common pattern with regard to inflation behaviour and that they are vulnerable to supply shocks.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by European Regional Science Association in its series ERSA conference papers with number ersa06p335.
Date of creation: Aug 2006
Date of revision:
Contact details of provider:
Postal: Welthandelsplatz 1, 1020 Vienna, Austria
Web page: http://www.ersa.org
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-01-14 (All new papers)
- NEP-CBA-2007-01-14 (Central Banking)
- NEP-GEO-2007-01-14 (Economic Geography)
- NEP-MAC-2007-01-14 (Macroeconomics)
- NEP-MON-2007-01-14 (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.:
- María Ángeles Caraballo & Carlos Usabiaga, 2003. "Análisis de la estructura de la inflación de las regiones españolas: La metodología de Ball y Mankiw," Economic Working Papers at Centro de Estudios Andaluces E2003/44, Centro de Estudios Andaluces.
- Jörg Döpke & Christian Pierdzioch, 2003.
"Inflation and the Skewness of the Distribution of Relative Price Changes - Empirical Evidence for Germany,"
Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik),
Justus-Liebig University Giessen, Department of Statistics and Economics, vol. 223(2), pages 136-158.
- Jörg Döpke & Christian Pierdzioch, 2001. "Inflation and the Skewness of the Distribution of Relative Price Changes: Empirical Evidence for Germany," Kiel Working Papers 1059, Kiel Institute for the World Economy.
- Ball, L. & Mankiw, G.H., 1992.
"Relative-Price Change as Aggregate Supply Shocks,"
Harvard Institute of Economic Research Working Papers
1609, Harvard - Institute of Economic Research.
- Laurence Ball & N. Gregory Mankiw, 1993. "Relative-price changes as aggregate supply shocks," Working Papers 93-13, Federal Reserve Bank of Philadelphia.
- Laurence Ball & N. Gregory Mankiw, 1992. "Relative-Price Changes as Aggregate Supply Shocks," NBER Working Papers 4168, National Bureau of Economic Research, Inc.
- Simon Hall & Anthony Yates, 1998. "Are there downward nominal rigidities in product markets?," Bank of England working papers 80, Bank of England.
- Ball, L. & Mankiw, N.G., 1992.
"Asymmetric Price Adjustment and Economic Fluctuations,"
Harvard Institute of Economic Research Working Papers
1602, Harvard - Institute of Economic Research.
- Ball, Laurence & Mankiw, N Gregory, 1994. "Asymmetric Price Adjustment and Economic Fluctuations," Economic Journal, Royal Economic Society, vol. 104(423), pages 247-61, March.
- Laurence Ball & N. Gregory Mankiw, 1992. "Asymmetric Price Adjustment and Economic Fluctuations," NBER Working Papers 4089, National Bureau of Economic Research, Inc.
- Levin, Andrew & Lin, Chien-Fu & James Chu, Chia-Shang, 2002.
"Unit root tests in panel data: asymptotic and finite-sample properties,"
Journal of Econometrics,
Elsevier, vol. 108(1), pages 1-24, May.
- Tom Doan, . "LEVINLIN: RATS procedure to perform Levin-Lin-Chu test for unit roots in panel data," Statistical Software Components RTS00242, Boston College Department of Economics.
- Richard De Abreu Lourenco & David Gruen, 1995. "Price Stickiness and Inflation," RBA Research Discussion Papers rdp9502, Reserve Bank of Australia.
- Robert A. Amano & R. Tiff Macklem, 1997. "Menu Costs, Relative Prices, and Inflation: Evidence for Canada," Working Papers 97-14, Bank of Canada.
- Mª Ángeles Caraballo Pou & Carlos Dabús, 2005. "Nominal rigidities, relative prices and skewness," Economic Working Papers at Centro de Estudios Andaluces E2005/17, Centro de Estudios Andaluces.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Gunther Maier).
If references are entirely missing, you can add them using this form.