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Is there a trade-off between inflation variability and output-gap variability in the EMU countries?

Listed author(s):
  • Philip Arestis

    ()

This paper examines the performance of monetary policy in eleven EMU countries for the whole period of the EMS. This is based on the trade-off between inflation variability and output-gap variability. To this end, we examine whether the introduction of an implicit inflation targeting by the EMU member countries after the Maastricht Treaty, changed the trade-off between inflation variability and output-gap variability. We employ a stochastic volatility model for two sub-periods of the EMS (i.e. before and after the Maastricht Treaty). We find that the trade-off varies amongst EMU countries. The implication of these findings is that there are asymmetries in the euro area, due to different economic structures among the member countries of the EMU.

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Paper provided by National Institute of Economic and Social Research in its series NIESR Discussion Papers with number 238.

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Date of creation: May 2004
Handle: RePEc:nsr:niesrd:104
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  2. Philip Arestis & Kostas Mouratidis, 2004. "Is There a Trade-Off Between Inflation Variability and Output-Gap Variability in the EMU Countries?," Scottish Journal of Political Economy, Scottish Economic Society, vol. 51(5), pages 691-706, November.
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  16. Cecchetti, Stephen G & McConnell, Margaret M & Perez-Quiros, Gabriel, 2002. "Policymakers' Revealed Preferences and the Output-Inflation Variability Trade-Off: Implications for the European System of Central Banks," Manchester School, University of Manchester, vol. 70(4), pages 596-618, Special I.
  17. Hamilton, James D., 1988. "Rational-expectations econometric analysis of changes in regime : An investigation of the term structure of interest rates," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 385-423.
  18. Fuhrer, Jeffrey C, 1997. "Inflation/Output Variance Trade-Offs and Optimal Monetary Policy," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 29(2), pages 214-234, May.
  19. Caporale, Guglielmo Maria & Kalyvitis, Sarantis & Pittis, Nikitas, 1996. "Interest rate convergence, capital controls, risk premia and foreign exchange market efficiency in the EMS," Journal of Macroeconomics, Elsevier, vol. 18(4), pages 693-714.
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