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Inflation Inequality in Europe

Listed author(s):
  • Roberta Colavecchio


    (University of Hamburg)

  • Ulrich Fritsche


    (University of Hamburg and KOF Swiss Economic Institute, ETH Zurich)

  • Michael Graff


    (KOF Swiss Economic Institute, ETH Zurich and Jacobs University, Bremen)

We analyze cross-household inflation dispersion in Europe using “fictitious” monthly inflation rates for several household categories (grouped according to income levels, household size, socio-economic status, age) for the period from 1997 to 2008. Our analysis is carried out on a panel of 23 up to 27 household-specific inflation rates per country for 15 countries. In the first part of the paper, we employ time series and related non-stationary panel approaches to shed light on cross-country differences in inflation inequality with respect to the number of driving forces in the panel. In particular, we focus on the degree of persistence of the household-specific inflation rates and their the adjustment behaviour towards the inflation rate of a “representative household”. In the second part of the paper, we pool over the full sample of all countries and test if and by how much certain household categories across Europe are more prone to significant inflation differentials and significant differences in the volatility of inflation. Furthermore we search for the presence of clusters with respect to inflation susceptibility. On the national level, we find evidence for the existence of one main driving factor driving the non-stationarity of the panel and evidence for a single co-integration vector. Persistence of deviations, however, is high, and the adjustment speed towards the “representative household” is low. Even if there is no concern about a long-run stable distribution, at least in the short- to medium run deviations tend to last. On the European level, we find small but significant differences (mainly along income levels), we can separate 5 clusters and two main driving forces for the differences in the overall panel. All in all, even if differences are relatively small, they are not negligible and persistent enough to represent a serious matter of debate for economic and social policy.

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File Function: First version, 2011
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Paper provided by Hamburg University, Department Wirtschaft und Politik in its series Macroeconomics and Finance Series with number 201102.

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Length: 37 pages
Date of creation: Feb 2011
Handle: RePEc:hep:macppr:201102
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  1. Bart Hobijn & David Lagakos, 2005. "Inflation Inequality In The United States," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 51(4), pages 581-606, December.
  2. Idson, Todd & Miller, Cynthia, 1997. "The Implications of Demographic-Specific Inflation Rates for Trends in Real Educational Wage Differentials," Journal of Business & Economic Statistics, American Statistical Association, vol. 15(4), pages 464-469, October.
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