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The impact of exogenous shocks on the dynamics and persistence of inflation: a macroeconomic model-based approach for Greece

Author

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  • Theodore M. Mitrakos

    () (Bank of Greece)

  • Nicholas G. Zonzilos

    () (Bank of Greece)

Abstract

The paper analyses the dynamic response of inflation to various economic shocks and investigates the sources of inflation persistence through a set of counter factual simulations. Analysis shows that inflation seems to be more persistent in Greece than, on average, in Euro Area. Inflation persistence tends to be higher in response to fiscal shocks than others shocks. Only an indirect tax shock could be classified as “non-persistent” for Greece. Inflation persistence is crucially affected by the degree of competition in product market and it is mainly of intrinsic nature while nominal rigidities and frictions in the labor market do not seem important in explaining the relatively higher persistence of Greek inflation.

Suggested Citation

  • Theodore M. Mitrakos & Nicholas G. Zonzilos, 2006. "The impact of exogenous shocks on the dynamics and persistence of inflation: a macroeconomic model-based approach for Greece," Economic Bulletin, Bank of Greece, issue 26, pages 37-57, January.
  • Handle: RePEc:bog:econbl:y:2006:i:26:p:37-57
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    File URL: https://www.bankofgreece.gr/BogEkdoseis/econbull200601.pdf
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    More about this item

    Keywords

    Inflation persistence; macroeconomic models; impulse response function;

    JEL classification:

    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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