Inflation Differentials in the Euro Area and Their Determinants - An Empirical View
53 Pages Posted: 15 Oct 2009
Date Written: April 14, 2009
In this paper, we present evidence on the statistical features of observed dispersion in inflation rates in the Euro area. Our descriptive exercise shows that there is still a remarkable dispersion of HICP inflation rates and most of dispersion originates in the non-traded categories of the HICP. We examine the determinants of inflation differentials in a panel of the states of the Euro area in 1999-2007. The evidence shows that output gaps and a proxy for price level convergence were statistically significant; some determinants that were found significant in previous studies did not have impact on inflation (e.g. exchange rate).
Keywords: inflation differentials, price convergence, exchange rate, panel data
JEL Classification: C23, E31, F15, F41
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