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Persistent Differential Inflation Rates in the New Euro Member Countries: The Phillips Curve before and after Adopting the Euro

In: Money, Banking and Financial Markets in Central and Eastern Europe

Author

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  • Marjan Senjur

Abstract

The 2002 introduction of euro notes and coins (the so-called cash changeover) in 12 Euro Monetary Union (EMU) member countries did not cause inflationary pressure (Angelini and Lippi, 2007). There was also a second wave of euro-adopting countries during 2007–9. Was the introduction of the euro also non-inflationary this second time? Why does this question arise? While preparing to adopt the euro in 2005 and 2006 Slovenia had an inflation rate of 2.5 per cent. In 2007, after it had adopted the euro, the inflation rate had jumped to an average annual level of 3.6 per cent, rising further to 5.7 per cent in 2008. Both policymakers and researchers failed to foresee the rise in the inflation rate as a result of the country’s adopting the euro (Weyerstrass, 2008; Weyerstrass and Neck, 2007). The data indicate that Slovenia has had significantly higher differential inflation, for example, a higher national inflation rate, in comparison to the euro area, ever since 1997. How can we explain the higher differential inflation before and after the country introduced the euro?

Suggested Citation

  • Marjan Senjur, 2010. "Persistent Differential Inflation Rates in the New Euro Member Countries: The Phillips Curve before and after Adopting the Euro," Palgrave Macmillan Studies in Banking and Financial Institutions, in: Roman Matousek (ed.), Money, Banking and Financial Markets in Central and Eastern Europe, chapter 11, pages 229-252, Palgrave Macmillan.
    • Handle: RePEc:pal:pmschp:978-0-230-30221-1_11
    DOI: 10.1057/9780230302211_11
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