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Euro area inflation as a predictor of national inflation rates

  • Antonella Cavallo

    ()

  • Antonio Ribba

    ()

The stability of inflation differentials is an important condition for the smooth working of a currency area, such as the European Economic and Monetary Union. In the presence of stability, changes in national inflation rates, while holding Euro-area inflation fixed contemporaneously, should be only transitory. If this is the case, the rate of inflation of the whole area can also be interpreted as a predictor, at least in the long run, of the different national inflation rates. However, in this paper we show that this condition is satisfied only for a small number of countries, including France and Italy. Better convergence results for inflation differentials are, instead, found for the USA.

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File URL: http://www.recent.unimore.it/wp/RECent-wp82.pdf
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Paper provided by University of Modena and Reggio E., Dept. of Economics "Marco Biagi" in its series Center for Economic Research (RECent) with number 082.

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Length: pages 26
Date of creation: May 2012
Date of revision:
Handle: RePEc:mod:recent:082
Contact details of provider: Web page: http://www.recent.unimore.it/

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