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Divergent Inflation Rates in EMU

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  • Philip R. Lane
  • Patrick Honohan

Abstract

We analyse 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 ouput 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.

Suggested Citation

  • Philip R. Lane & Patrick Honohan, 2003. "Divergent Inflation Rates in EMU," Trinity Economics Papers 20034, Trinity College Dublin, Department of Economics.
  • Handle: RePEc:tcd:tcduee:20034
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