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Inflation Persistence under Semi-Fixed Exchange Rate Regimes: The European Evidence 1974–1998

  • Clemens Kool

    ()

  • Alex Lammertsma

In this paper, we empirically investigate the link between exchange rate accommodation and inflation persistence in Europe. We introduce the lagged level of the real exchange rate as an appropriate indicator of exchange rate accommodation. We correspondingly estimate a non-linear autoregressive inflation equation for ten European countries (excluding Germany) for the period 1974:1–1998:2. In the estimation procedure we allow for the presence of an unknown number of shifts in the mean of inflation. Overall, our results provide modest support for the existence of the theoretically hypothesized link between exchange rate accommodation and inflation persistence. Copyright Springer Science + Business Media, Inc. 2005

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File URL: http://hdl.handle.net/10.1007/s11079-005-5332-1
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Article provided by Springer in its journal Open Economies Review.

Volume (Year): 16 (2005)
Issue (Month): 1 (January)
Pages: 51-76

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Handle: RePEc:kap:openec:v:16:y:2005:i:1:p:51-76
Contact details of provider: Web page: http://www.springerlink.com/link.asp?id=100323

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  19. Kool,C.J.M. & Lammertsma,A., 1997. "The Phillips Curve, the Persistence of Inflation, and the Lucas Critique:Evidence from Exchange-Rate Regimes: Comment," Research Memorandum 020, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
  20. Dornbusch, Rudiger, 1982. "PPP Exchange-Rate Rules and Macroeconomic Stability," Journal of Political Economy, University of Chicago Press, vol. 90(1), pages 158-65, February.
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