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The impact of the European Monetary Union on inflation persistence in the Euro area

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  • Meller, Barbara
  • Nautz, Dieter

Abstract

This paper uses the European Monetary Union (EMU) as a natural experiment to investigate whether more effective monetary policy reduces the persistence of inflation. Taking into account the fractional integration of inflation, we confirm that inflation dynamics differed considerably across Euro area countries before the start of EMU. Since 1999, however, results obtained from panel estimation indicate that the degree of long run inflation persistence has converged. In line with theoretical predictions, we find that the persistence of inflation has significantly decreased in the Euro area probably as a result of the more effective monetary policy of the ECB.

Suggested Citation

  • Meller, Barbara & Nautz, Dieter, 2009. "The impact of the European Monetary Union on inflation persistence in the Euro area," SFB 649 Discussion Papers 2009-037, Humboldt University Berlin, Collaborative Research Center 649: Economic Risk.
    • Handle: RePEc:zbw:sfb649:sfb649dp2009-037
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    4. Baillie, Richard T. & Morana, Claudio, 2012. "Adaptive ARFIMA models with applications to inflation," Economic Modelling, Elsevier, vol. 29(6), pages 2451-2459.
    5. Chi-Young Choi & Joo Yong Lee & Róisín O'Sullivan, 2015. "Monetary Policy Regime Change and Regional Inflation Dynamics: Looking through the Lens of Sector-Level Data for Korea," Working Papers 2015-20, Economic Research Institute, Bank of Korea.

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    Keywords

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    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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