EconPapers    
Economics at your fingertips  
 

The Case for a Positive Euro Area Inflation Target: Evidence from France, Germany and Italy

Klaus Adam, Erwan Gautier, Sergio Santoro and Henning Weber

Working papers from Banque de France

Abstract: Using micro price data underlying the Harmonized Index of Consumer Prices in France, Germany and Italy, we estimate relative price trends over the product life cycle and show that minimizing price and mark-up distortions in the presence of these trends requires targeting a significantly positive inflation target. Relative price trends shift the optimal inflation target up from a level of zero percent, as suggested by the standard sticky price literature, to a range of 1.1%- 2.1% in France, 1.2%-2.0% in Germany, 0.8%-1.0% in Italy, and 1.1-1.7% in the Euro Area (three country average). Differences across countries emerge due to systematic differences in the strength of relative price trends. Other considerations not taken into account in the present paper may push up the optimal inflation targets further. The welfare costs associated with targeting zero inflation turn out to be substantial and range between 2.1% and 4.5% of consumption in present-value terms.

Keywords: Optimal Inflation Target; Micro Price Trends; Welfare (search for similar items in EconPapers)
JEL-codes: E31 E52 (search for similar items in EconPapers)
Pages: 43 pages
Date: 2021
New Economics Papers: this item is included in nep-isf, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
https://publications.banque-france.fr/sites/defaul ... /documents/wp825.pdf

Related works:
Journal Article: The case for a positive euro area inflation target: Evidence from france, germany and italy (2022) Downloads
Working Paper: The Case for a Positive Euro Area Inflation Target: Evidence from France, Germany and Italy (2021) Downloads
Working Paper: The Case for a Positive Euro Area Inflation Target: Evidence From France, Germany and Italy (2021) Downloads
Working Paper: The Case for a Positive Euro Area Inflation Target: Evidence from France, Germany and Italy (2021) Downloads
Working Paper: The case for a positive euro area inflation target: evidence from France, Germany and Italy (2021) Downloads
Working Paper: The case for a positive euro area inflation target: Evidence from France, Germany and Italy (2021) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bfr:banfra:825

Access Statistics for this paper

More papers in Working papers from Banque de France Banque de France 31 Rue Croix des Petits Champs LABOLOG - 49-1404 75049 PARIS. Contact information at EDIRC.
Bibliographic data for series maintained by Michael brassart ().

 
Page updated 2025-03-30
Handle: RePEc:bfr:banfra:825