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Regional Inflation Dynamics within and across Euro Area and a Comparison with the US

Author

Listed:
  • Guenter Beck

    (Goethe University Frankfurt Kirstin Hubrich, Research Department, European Central Bank)

  • Massimiliano Marcellino

    (IEP-Bocconi University, IGIER and CEPR)

Abstract

We investigate co-movements in inflation dynamics within and across euro area regions and find it important for monetary policy to monitor regional inflation dynamics to enhance the understanding of aggregate inflation. We employ a model where regional inflation dynamics are explained by common euro area and country specific factors and an idiosyncratic regional component. We find substantial common area wide component, that can be related to common euro area monetary policy, to exchange rate and oil prices changes. The effects of the area wide factors differ across regions, however. We also find a substantial national component. Our findings do not differ substantially before and after EMU. Analysing US regional inflation developments yields similar results regarding the relevance of common US factors.

Suggested Citation

  • Guenter Beck & Massimiliano Marcellino, 2006. "Regional Inflation Dynamics within and across Euro Area and a Comparison with the US," Computing in Economics and Finance 2006 338, Society for Computational Economics.
    • Handle: RePEc:sce:scecfa:338
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    File URL: http://repec.org/sce2006/up.5654.1141119179.pdf
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Nagayasu, Jun, 2014. "Regional inflation, spatial location and the Balassa-Samuelson effect," MPRA Paper 59220, University Library of Munich, Germany.
    2. Eickmeier, Sandra, 2006. "Comovements and heterogeneity in the Comovements and heterogeneity in the dynamic factor model," Discussion Paper Series 1: Economic Studies 2006,31, Deutsche Bundesbank.
    3. Zsuzsanna Zsibók & Balázs Varga, 2012. "Inflation Persistence in Hungary: a Spatial Analysis," Working Papers 1203, Department of Mathematical Economics and Economic Analysis, Corvinus University of Budapest.
    4. Andrea Vaona & Guido Ascari, 2012. "Regional Inflation Persistence: Evidence from Italy," Regional Studies, Taylor & Francis Journals, vol. 46(4), pages 509-523, June.
    5. Riccardo Cristadoro & Giuseppe Saporito & Fabrizio Venditti, 2013. "Forecasting inflation and tracking monetary policy in the euro area: does national information help?," Empirical Economics, Springer, vol. 44(3), pages 1065-1086, June.
    6. Giulio Palomba & Emma Sarno & Alberto Zazzaro, 2009. "Testing similarities of short-run inflation dynamics among EU-25 countries after the Euro," Empirical Economics, Springer, vol. 37(2), pages 231-270, October.
    7. Diego Winkelried & José Enrique Gutierrez, 2015. "Regional inflation dynamics and inflation targeting. The case of Peru," Journal of Applied Economics, Universidad del CEMA, vol. 18, pages 199-224, November.
    8. Eric Girardin & Cheikh A. T. Sall, 2018. "Inflation Dynamics of Franc-Zone Countries Determinants, Co-movements and Spatial Interactions," Open Economies Review, Springer, vol. 29(2), pages 295-320, April.
    9. Carla Massidda & Paolo Mattana, 2008. "Regional productivity and relative prices dynamics: the case of Italy," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 42(4), pages 945-966, December.
    10. Kai Carstensen & Jan Hagen & Oliver Hossfeld & Abelardo Salazar Neaves, 2009. "Money Demand Stability And Inflation Prediction In The Four Largest Emu Countries," Scottish Journal of Political Economy, Scottish Economic Society, vol. 56(1), pages 73-93, February.
    11. Angelos Liontakis & Christos T. Papadas, 2010. "Distribution Dynamics of Food Price Inflation Rates in EU: An Alternative Conditional Density Estimator Approach," Working Papers 2010-6, Agricultural University of Athens, Department Of Agricultural Economics.
    12. Stefano Maria Iacus & Giuseppe Porro, 2014. "Does European Monetary Union make inflation dynamics more uniform?," Applied Economics Letters, Taylor & Francis Journals, vol. 21(6), pages 391-396, April.
    13. Sebastian Dullien & Ulrich Fritsche, 2007. "Does the Dispersion of Unit Labor Cost Dynamics in the EMU Imply Long-Run Divergence?: Results from a Comparison with the United States of America and Germany," Discussion Papers of DIW Berlin 674, DIW Berlin, German Institute for Economic Research.
    14. Andrzej Toroj, 2009. "Macroeconomic adjustment and heterogeneity in the euro area," NBP Working Papers 54, Narodowy Bank Polski.
    15. Serhan Cevik, 2023. "Mind the gap: city-level inflation synchronization," International Review of Economics, Springer;Happiness Economics and Interpersonal Relations (HEIRS), vol. 70(1), pages 121-139, March.
    16. Aleksandra Halka & Grzegorz Szafranski, 2018. "What Common Factors are Driving Inflation in CEE Countries?," Prague Economic Papers, Prague University of Economics and Business, vol. 2018(2), pages 131-148.
    17. repec:rre:publsh:v:36:y:2006:i:3:p:400-426 is not listed on IDEAS
    18. Ulrich Fritsche & Vladimir Kuzin, 2007. "Unit labor cost growth differentials in the Euro area, Germany, and the US: lessons from PANIC and cluster analysis," Macroeconomics and Finance Series 200703, University of Hamburg, Department of Socioeconomics.
    19. Sebastian Dullien & Ulrich Fritsche, 2008. "Does the dispersion of unit labor cost dynamics in the EMU imply long-run divergence?," International Economics and Economic Policy, Springer, vol. 5(3), pages 269-295, November.
    20. Hasan Engin Duran, 2015. "Regional Inflation Convergence In Turkey," Working Papers 2015/10, Turkish Economic Association.
    21. Liontakis, Angelos E. & Papadas, Christos T., 2009. "Distribution Dynamics of Food Price Inflation Rates in EU: An Alternative Conditional Density Estimator Approach," 113th Seminar, September 3-6, 2009, Chania, Crete, Greece 58084, European Association of Agricultural Economists.
    22. Ailenei, Dorel & Cristescu, Amalia, 2010. "Regional Distribution of Inflationary Pressures in Romania," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(4), pages 32-43, December.
    23. Uwe Blien & Hermann Gartner & Heiko Stüber & Katja Wolf, 2009. "Regional price levels and the agglomeration wage differential in western Germany," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 43(1), pages 71-88, March.
    24. Jun Nagayasu, 2017. "Regional inflation, spatial locations and the Balassa-Samuelson effect: Evidence from Japan," Urban Studies, Urban Studies Journal Limited, vol. 54(6), pages 1482-1499, May.

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    More about this item

    Keywords

    regional inflation dynamics; euro area and US; common factor models;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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