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Inflation persistence in Luxembourg: a comparison with EU15 countries at the disaggregate level

Listed author(s):
  • Patrick Lünnemann

    ()

  • Thomas Y. Mathä

    ()

The aim of this paper is to analyse the degree of inflation persistence in Luxembourg using disaggregate price index data from the Harmonised Index of Consumer Prices. The degree of inflation persistence is then compared to estimates for the EU15 and for the euro area as well as for the individual member countries according to a unified approach. In order to assess the robustness of our estimates both a parametric and a non-parametric measure of inflation persistence is used. Overall, our results suggest a relatively low degree of inflation persistence in Luxembourg. For a large number of sub-indices we are not only able to reject the unit root hypothesis, but also we find a low degree of inflation persistence relative to other EU15 countries and relative to the EU15 and euro area aggregates. For Luxembourg as well as the other EU15 countries, our results suggest substantial heterogeneity in the degree of inflation persistence across sub-indices. We find some support for the presence of aggregation effects, both across indices and countries. Structural break tests for all EU15 countries suggest the presence of structural changes in the inflation process owing to the inception of the single monetary policy and/or to the modified treatment of sales.

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File URL: http://www.bcl.lu/fr/Recherche/publications/cahiers_etudes/12/BCLWP012.pdf
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Paper provided by Central Bank of Luxembourg in its series BCL working papers with number 12.

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Length: 40 pages
Date of creation: Oct 2004
Publication status: published in part as ?Mean Reversion and Sales? in Applied Economics Letters, 2009, 16(12): 1271?1275.
Handle: RePEc:bcl:bclwop:bclwp012
Contact details of provider: Web page: http://www.bcl.lu/

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  1. Gerard O'Reilly & Karl Whelan, 2005. "Has Euro-Area Inflation Persistence Changed Over Time?," The Review of Economics and Statistics, MIT Press, vol. 87(4), pages 709-720, November.
  2. Carlos Robalo Marques, 2005. "Inflation persistence: facts or artefacts?," Economic Bulletin and Financial Stability Report Articles, Banco de Portugal, Economics and Research Department.
  3. Robert Barsky & Christopher House & Miles Kimball, 2003. "Do Flexible Durable Goods Prices Undermine Sticky Price Models?," Macroeconomics 0302003, EconWPA.
  4. Benigno, Pierpaolo & Lopez-Salido, J. David, 2006. "Inflation Persistence and Optimal Monetary Policy in the Euro Area," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(3), pages 587-614, April.
  5. Zaffaroni, Paolo, 2004. "Contemporaneous aggregation of linear dynamic models in large economies," Journal of Econometrics, Elsevier, vol. 120(1), pages 75-102, May.
  6. Perron, Pierre, 1990. "Testing for a Unit Root in a Time Series with a Changing Mean," Journal of Business & Economic Statistics, American Statistical Association, vol. 8(2), pages 153-162, April.
  7. repec:esx:essedp:437 is not listed on IDEAS
  8. Granger, C. W. J., 1980. "Long memory relationships and the aggregation of dynamic models," Journal of Econometrics, Elsevier, vol. 14(2), pages 227-238, October.
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