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Divergent inflation rates in EMU

  • Patrick Honohan
  • Philip R. Lane

We analyse the sources of divergent national inflation rates among EMU member countries. At one level, we review the Irish 'outlier' experience; at another, we estimate panel regressions for the 1999-2001 period. We highlight the role played by differential exposure to euro exchange rate movements in explaining inflation divergence. In addition, we find evidence that ouput gaps and a "price level convergence" effect have also been important. We draw some policy conclusions for the accession countries that are hoping to join EMU.

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Article provided by CEPR & CES & MSH in its journal Economic Policy.

Volume (Year): 18 (2003)
Issue (Month): 37 (October)
Pages: 357-394

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Handle: RePEc:bla:ecpoli:v:18:y:2003:i:37:p:357-394
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