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Inflation differentials in EMU: the Spanish case

Author

Listed:
  • David López-Salido

    () (Banco de España)

  • Fernando Restoy

    () (Banco de España)

  • Javier Vallés

    () (Banco de España)

Abstract

In this paper we present some descriptive evidence and simulation exercises with both an estimated backward looking model and a calibrated general equilibrium forward looking model that allow some light to be shed on the determinants and macroeconomic implications of persistent inflation differentials in Spain within EMU. We show that a demand expansion biased towards consumption of non-tradable goods and real-wage rigidities –such as wage indexation clauses– are among the key determinants of diverging price developments in Spain. Moreover, we find that in those conditions the stabilising mechanism of terms of trade effects is relatively weak, although the economy undergoes lasting losses in competitiveness.

Suggested Citation

  • David López-Salido & Fernando Restoy & Javier Vallés, 2005. "Inflation differentials in EMU: the Spanish case," Working Papers 0514, Banco de España;Working Papers Homepage.
  • Handle: RePEc:bde:wpaper:0514
    as

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    File URL: http://www.bde.es/f/webbde/SES/Secciones/Publicaciones/PublicacionesSeriadas/DocumentosTrabajo/05/Fic/dt0514e.pdf
    File Function: First version, June 2005
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    References listed on IDEAS

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    Cited by:

    1. Bentolila, Samuel & Dolado, Juan J. & Jimeno, Juan F., 2008. "Does immigration affect the Phillips curve? Some evidence for Spain," European Economic Review, Elsevier, pages 1398-1423.
    2. Patrick Honohan & Anthony J. Leddin, 2006. "Ireland in EMU - More Shocks, Less Insulation?," The Economic and Social Review, Economic and Social Studies, vol. 37(2), pages 263-294.
    3. Martín-Moreno, José M. & Pérez, Rafaela & Ruiz, Jesús, 2014. "A real business cycle model with tradable and non-tradable goods for the Spanish economy," Economic Modelling, Elsevier, vol. 36(C), pages 204-212.
    4. Diego Romero-Ávila & Carlos Usabiaga, 2012. "Disaggregate evidence on Spanish inflation persistence," Applied Economics, Taylor & Francis Journals, vol. 44(23), pages 3029-3046, August.
    5. Carlos Usabiaga & Alejandro C. García-Cintado & Diego Romero-Ávila, 2016. "The Economic Integration of Spain: A Change in the Inflation Pattern," EcoMod2016 9367, EcoMod.
    6. Lane, Philip R., 2006. "The Real Effects of EMU," CEPR Discussion Papers 5536, C.E.P.R. Discussion Papers.
    7. Francesca Pancotto & Filippo Pericoli, 2014. "Till labor cost do us part," International Economics and Economic Policy, Springer, pages 371-395.
    8. Alejandro C. García-Cintado & Diego Romero-Ávila & Carlos Usabiaga, 2016. "The economic integration of Spain: a change in the inflation pattern," Latin American Economic Review, Springer;Centro de Investigaciòn y Docencia Económica (CIDE), pages 1-41.
    9. Carlos Usabiaga & Diego Romero-Ávila, 2012. "New Disaggregate Evidence on Spanish Inflation Persistence," EcoMod2012 3800, EcoMod.
    10. van Ewijk, Saskia E. & Arnold, Ivo J.M., 2015. "Financial integration in the euro area: Pro-cyclical effects and economic convergence," Economic Modelling, Elsevier, vol. 44(C), pages 335-342.

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