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Firms’ balance sheets and sectoral inflation in the euro area during the financial crisis

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  • Antoun de Almeida, Luiza

Abstract

Despite the sharp contraction in economic activity following the financial crisis and the subsequent euro area debt crisis, inflation in the euro area (as in other advanced economies) did not fall as much as predicted by standard New Keynesian models. This paper shows empirically that Gilchrist et al. (2015a)’s finding that less liquid US firms increased their prices during the financial crisis is also valid for firms in euro area countries under distress, the so-called GIPS countries. This result corroborates the notion that financial frictions may influence inflation dynamics.

Suggested Citation

  • Antoun de Almeida, Luiza, 2015. "Firms’ balance sheets and sectoral inflation in the euro area during the financial crisis," Economics Letters, Elsevier, vol. 135(C), pages 31-33.
  • Handle: RePEc:eee:ecolet:v:135:y:2015:i:c:p:31-33
    DOI: 10.1016/j.econlet.2015.07.027
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    References listed on IDEAS

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    1. Simon Gilchrist & Raphael Schoenle & Jae Sim & Egon Zakrajšek, 2017. "Inflation Dynamics during the Financial Crisis," American Economic Review, American Economic Association, vol. 107(3), pages 785-823, March.
    2. Hanan Morsy & Florence Jaumotte, 2012. "Determinants of Inflation in the Euro Area; The Role of Labor and Product Market Institutions," IMF Working Papers 12/37, International Monetary Fund.
    3. Olivier Coibion & Yuriy Gorodnichenko, 2015. "Is the Phillips Curve Alive and Well after All? Inflation Expectations and the Missing Disinflation," American Economic Journal: Macroeconomics, American Economic Association, vol. 7(1), pages 197-232, January.
    4. jae sim & Raphael Schoenle & Egon Zakrajsek & Simon Gilchrist, 2015. "Financial Heterogeneity and Monetary Union," 2015 Meeting Papers 1327, Society for Economic Dynamics.
    5. Lawrence J. Christiano & Martin S. Eichenbaum & Mathias Trabandt, 2015. "Understanding the Great Recession," American Economic Journal: Macroeconomics, American Economic Association, vol. 7(1), pages 110-167, January.
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    Citations

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    Cited by:

    1. Abbate, Angela & Eickmeier, Sandra & Prieto, Esteban, 2016. "Financial shocks and inflation dynamics," Discussion Papers 41/2016, Deutsche Bundesbank.
    2. Acharya, Viral V. & Crosignani, Matteo & Eisert, Tim & Eufinger, Christian, 2020. "Zombie Credit and (Dis-)Inflation: Evidence from Europe," CEPR Discussion Papers 14960, C.E.P.R. Discussion Papers.
    3. Pierluigi Balduzzi & Emanuele Brancati & Marco Brianti & Fabio Schiantarelli, 2020. "The Economic Effects of COVID-19 and Credit Constraints: Evidence from Italian Firms’ Expectations and Plans," Boston College Working Papers in Economics 1013, Boston College Department of Economics, revised 22 Aug 2020.

    More about this item

    Keywords

    Sectoral inflation; Inflation dynamics; Financial crisis; Euro area debt crisis; Financial frictions;

    JEL classification:

    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

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