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How persistent is disaggregate inflation? An analysis across EU 15 countries and HICP sub-indices

  • Lünnemann, Patrick
  • Mathä, Thomas Y.

This paper analyses the degree of inflation persistence in the EU15, the euro area and each of its member states using disaggregate price indices from the Harmonised Index of Consumer Prices. Our results reveal substantial heterogeneity across countries and indices. The overall results, based on both parametric and non-parametric persistence measures, suggest a very moderate degree of median and mean inflation persistence. For most price indices we are able to reject the unit root hypothesis, as well as the notion of disaggregate inflation exhibiting a high degree of persistence. Durable goods and services tend to be relatively less persistent than other indices. Aggregation effects, both across indices and countries, tend to be present. We find structural breaks both owing to the change in the monetary regime and to the modified treatment of sales in the official HICP series. The latter tends to reduce the measured degree of inflation persistence. JEL Classification: E31, C21, C22, C14

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Paper provided by European Central Bank in its series Working Paper Series with number 0415.

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Date of creation: Nov 2004
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Handle: RePEc:ecb:ecbwps:20040415
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  1. Benigno, Pierpaolo & López-Salido, David, 2002. "Inflation persistence and optimal monetary policy in the euro area," Working Paper Series 0178, European Central Bank.
  2. Robert Barsky & Christopher House & Miles Kimball, 2003. "Do Flexible Durable Goods Prices Undermine Sticky Price Models?," Macroeconomics 0302003, EconWPA.
  3. O'Reilly,Gerard & Whelan, Karl, 2004. "Has Euro-Area Inflation Persistence Changed Over Time?," Research Technical Papers 4/RT/04, Central Bank of Ireland.
  4. Zaffaroni, Paolo, 2004. "Contemporaneous aggregation of linear dynamic models in large economies," Journal of Econometrics, Elsevier, vol. 120(1), pages 75-102, May.
  5. Perron, P., 1989. "Testing For A Unit Root In A Time Series With A Changing Mean," Papers 347, Princeton, Department of Economics - Econometric Research Program.
  6. Marcus J. Chambers, . "Long Memory and Aggregation in Macroeconomic Time Series," Economics Discussion Papers 437, University of Essex, Department of Economics.
  7. Robalo Marques, Carlos, 2004. "Inflation persistence: facts or artefacts?," Working Paper Series 0371, European Central Bank.
  8. repec:ucn:oapubs:10197/251 is not listed on IDEAS
  9. 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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