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Inflation persistence and price-setting behaviour in the euro area : a summary of the Inflation Persistence Network evidence

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  • Filippo Altissimo

    () (European Central Bank)

  • Michael Ehrmann

    () (European Central Bank)

  • Frank Smets

    () (European Central Bank)

Abstract

This paper provides a summary of current knowledge on inflation persistence and price stickiness in the euro area, based on research findings that have been produced in the context of the Inflation Persistence Network. The main findings are: i) Under the current monetary policy regime, the estimated degree of inflation persistence in the euro area is moderate; ii) Retail prices in the euro area are more sticky than in the US; iii) There is significant sectoral heterogeneity in the degree of price stickiness; iv) Price decreases are not uncommon. The paper also investigates some of the policy implications of these findings

Suggested Citation

  • Filippo Altissimo & Michael Ehrmann & Frank Smets, 2006. "Inflation persistence and price-setting behaviour in the euro area : a summary of the Inflation Persistence Network evidence," Working Paper Research 95, National Bank of Belgium.
  • Handle: RePEc:nbb:reswpp:200610-7
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    Cited by:

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    2. Bask, Mikael, 2007. "Optimal monetary policy in a hybrid New Keynesian model with a cost channel," Research Discussion Papers 24/2007, Bank of Finland.
    3. Hondroyiannis, George & Swamy, P.A.V.B. & Tavlas, George S., 2008. "Inflation dynamics in the euro area and in new EU members: Implications for monetary policy," Economic Modelling, Elsevier, vol. 25(6), pages 1116-1127, November.
    4. Evžen Kočenda & Balázs Varga, 2018. "The Impact of Monetary Strategies on Inflation Persistence," International Journal of Central Banking, International Journal of Central Banking, vol. 14(4), pages 229-274, September.
    5. Brian Micallef & Cyrus, Laurent, 2013. "Inflation differentials in a Monetary Union: the case of Malta," CBM Working Papers WP/05/2013, Central Bank of Malta.
    6. Smets, Frank & Warne, Anders & Wouters, Rafael, 2014. "Professional forecasters and real-time forecasting with a DSGE model," International Journal of Forecasting, Elsevier, vol. 30(4), pages 981-995.
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    9. Bask, Mikael & Proaño, Christian R., 2016. "Optimal monetary policy under learning and structural uncertainty in a New Keynesian model with a cost channel and inflation inertia," Journal of Economic Dynamics and Control, Elsevier, vol. 69(C), pages 112-126.
    10. Sbrana, Giacomo & Silvestrini, Andrea & Venditti, Fabrizio, 2017. "Short-term inflation forecasting: The M.E.T.A. approach," International Journal of Forecasting, Elsevier, vol. 33(4), pages 1065-1081.
    11. McAdam, Peter & Willman, Alpo, 2007. "Phillips-Curve Dynamics: Mark-Up Cyclicality, Effective Hours and Regime-Dependency," Kiel Working Papers 1359, Kiel Institute for the World Economy (IfW).
    12. Kanellopoulos, Nikolaos C. & Koutroulis, Aristotelis G., 2016. "Non-linearities in euro area inflation persistence," Economic Modelling, Elsevier, vol. 59(C), pages 116-123.
    13. Thorvardur Tjörvi Ólafsson, 2006. "The New Keynesian Phillips Curve: In Search of Improvements and Adaptation to the Open Economy," Economics wp31_tjorvi, Department of Economics, Central bank of Iceland.
    14. Ines Buono & Sara Formai, 2016. "The evolution of the anchoring of inflation expectations," Questioni di Economia e Finanza (Occasional Papers) 321, Bank of Italy, Economic Research and International Relations Area.
    15. Muhammad Nadim Hanif & Javed Iqbal & Imran Naveed Khan, 2017. "Global Commodity Prices and Domestic Inflation: A Case Study of Pakistan," SBP Research Bulletin, State Bank of Pakistan, Research Department, vol. 13, pages 21-51.
    16. Nicolas Pinkwart, 2010. "Uncertainty About the Persistence of Inflation," Working Papers 091, Bavarian Graduate Program in Economics (BGPE).
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    19. Geert Langenus, 2006. "Fiscal sustainability indicators and policy design in the face of ageing," Working Paper Research 102, National Bank of Belgium.
    20. Diego Romero-Ávila & Carlos Usabiaga, 2012. "Disaggregate evidence on Spanish inflation persistence," Applied Economics, Taylor & Francis Journals, vol. 44(23), pages 3029-3046, August.

    More about this item

    Keywords

    price-setting; inflation persistence; monetary policy; EMU;

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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