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Divergent Inflation Rates in EMU

  • Philip R. Lane,
  • Patrick Honohan

We analyze the sources of divergent national inflation rates among EMU member countries. At one level, we review the Irish ‘outlier’ experience; at another, we estimate panel regressions for the 1999-2001 period. We highlight the role played by differential exposure to euro exchange rate movements in explaining inflation divergence. In addition, we find evidence that output gaps and a “price level convergence” effect have also been important. We draw some policy conclusions for the accession countries that are hoping to join EMU.

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Paper provided by IIIS in its series The Institute for International Integration Studies Discussion Paper Series with number iiisdp05.

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Date of creation: 01 Jul 2003
Handle: RePEc:iis:dispap:iiisdp05
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