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Regional inflation dynamics using space-time models

  • Helena Marques

    ()

    (Universitat de les Illes Balears)

  • Gabriel Pino

    ()

    (Universidad de Concepción, Chile)

  • J.D.Tena

    ()

    (Universidad di Sassari, Italia y Universidad Carlos III, Spain)

This paper provides empirical evidence of the role of spatial factors on the determination of inflation dynamics for a representative set of tradable commodities in Chile. We present a simple model that explains inflation divergence across regions in a monetary union with similar preferences as a consequence of the geographical allocation of producers in the different regions. Our results indicate that spatial allocation together with transport costs are important determinants of regional inflation while macroeconomic common factors do not play an important role in this process. Existing literature had obtained the opposite result for Europe and the reasons for that difference warrant further investigation. Moreover, we find that geographical distance seems to be a more appropriate measure of neighbourhood than the adjacency of regions.

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Paper provided by Universitat de les Illes Balears, Departament d'Economía Aplicada in its series DEA Working Papers with number 40.

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Date of creation: 2009
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Handle: RePEc:ubi:deawps:40
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