Inflation Dynamics and the Cross-Sectional Distribution of Prices in the E.U. Periphery
We explore the connection between inflation and its higherorder moments for three economies in the periphery of the European Union (E.U.), Greece, Portugal and Spain. Motivated by a micro-founded model of inflation determination, along the lines of the hybrid New Keynesian Phillips curve, we examine whether and how much does the cross-sectional skewness in producer prices affect the path of inflation. We develop our analysis with the perspective of economic integration/inflation harmonization (in the E.U.) and discuss the peculiarities of these three economies. We find evidence of a strong positive relation between aggregate inflation and the distribution of relative-price changes for all three countries. A potentially important implication of our results is that, if the cross-sectional skewness of prices is directly related to aggregate inflation, not only the direction but also the magnitude of a nominal shock would influence output and inflation dynamics. Moreover, the effect of such a shock could be received asymmetrically, even when countries share a common currency.
|Date of creation:||2007|
|Date of revision:|
|Contact details of provider:|| Phone: +30-2710-230128|
Web page: http://econ.uop.gr/~econ/
More information through EDIRC
When requesting a correction, please mention this item's handle: RePEc:uop:wpaper:0004. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Kleanthis Gatziolis)
If references are entirely missing, you can add them using this form.