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Inflation Differentials in Europe: Past Experience and Future Prospects

  • Balázs Égert

    ()

    (Oesterreichische Nationalbank)

  • Doris Ritzberger-Grünwald

    ()

    (Oesterreichische Nationalbank)

  • Maria Antoinette Silgoner

    ()

    (Oesterreichische Nationalbank)

This paper analyzes past and potential inflation differentials for current EU Member States and the acceding countries. Although inflation differentials decreased significantly over the last ten years or so within the EU-15/EU-12 and the acceding countries, they are still on top of the policy agenda. Indeed there are a number of potential causes of inflation differentials. They range from cyclical factors via the exchange rate pass-through and oil price shocks to differences in productivity advances and changes in indirect taxes. Regarding the impact of these factors on inflation, a number of similarities can be found across countries. At the same time, because differences exist, e.g. in the cyclical position, the degree of openness, oil intensity or dependency as well as price and productivity levels, inflation differentials are not likely to vanish completely in the future. We also argue that the often cited catching-up factors, such as the Balassa-Samuelson effect, seem to be considerably weaker than generally believed. In addition, inflation differentials could be clearly associated with inappropriate national fiscal and structural policies.

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File URL: http://www.oenb.at/dms/oenb/Publikationen/Volkswirtschaft/Monetary-Policy-and-the-Economy/2004/Monetary-Policy-and-the-Economy-Q1-04/chapters/mop_20041_inflation_differentials_tcm16-19277.pdf
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Article provided by Oesterreichische Nationalbank (Austrian Central Bank) in its journal Monetary Policy & the Economy.

Volume (Year): (2004)
Issue (Month): 1 ()
Pages: 47–72

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Handle: RePEc:onb:oenbmp:y:2004:i:1:b:5
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  1. Orazio P. Attanasio & Luigi Guiso & Tullio Jappelli, 2002. "The Demand for Money, Financial Innovation, and the Welfare Cost of Inflation: An Analysis with Household Data," Journal of Political Economy, University of Chicago Press, vol. 110(2), pages 317-351, April.
  2. Markus Knell & Helmut Stix, 2003. "How Robustare Money Demand Estimations? A Meta-Analytic Approach," Working Papers 81, Oesterreichische Nationalbank (Austrian Central Bank).
  3. Sheri M. Markose & Yiing Jia Loke, 2003. "Network Effects On Cash-Card Substitution In Transactions And Low Interest Rate Regimes," Economic Journal, Royal Economic Society, vol. 113(487), pages 456-476, 04.
  4. Helmut Stix, 2004. "How Do Debit Cards Affect Cash Demand? Survey Data Evidence," Empirica, Springer, vol. 31(2), pages 93-115, June.
  5. Fischer, Björn & Köhler, Petra & Seitz, Franz, 2004. "The demand for euro area currencies: past, present and future," Working Paper Series 0330, European Central Bank.
  6. Jussi Snellman & Jukka Vesala & David Humphrey, 2001. "Substitution of Noncash Payment Instruments for Cash in Europe," Journal of Financial Services Research, Springer, vol. 19(2), pages 131-145, April.
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