Inflation Differentials in the Euro Area and Their Determinants - An Empirical View

53 Pages Posted: 15 Oct 2009

See all articles by Vaclav Zdarek

Vaclav Zdarek

University of Economics and Management in Prague

Iñaki Aldasoro

Bank for International Settlements (BIS)

Date Written: April 14, 2009

Abstract

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

Suggested Citation

Zdarek, Vaclav and Aldasoro, Iñaki, Inflation Differentials in the Euro Area and Their Determinants - An Empirical View (April 14, 2009). William Davidson Institute Working Paper No. 958, Available at SSRN: https://ssrn.com/abstract=1488942 or http://dx.doi.org/10.2139/ssrn.1488942

Vaclav Zdarek (Contact Author)

University of Economics and Management in Prague ( email )

nam. W.Churchilla 4
Prague 3, 130 67
Czech Republic

Iñaki Aldasoro

Bank for International Settlements (BIS) ( email )

Centralbahnplatz 2
Basel, Basel-Stadt 4002
Switzerland

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