Euro area inflation differentials

Ignazio Angeloni () and Michael Ehrmann ()

No 388, Working Paper Series from European Central Bank

Abstract: We build a stylised 12-country model of the euro area and use it to analyse why differences in national inflation and growth rates arise within the European monetary union. We find that inflation persistence is a key potential explanatory factor. Other more frequently mentioned reasons, like country-specific shocks or differences in the monetary transmission mechanism across countries, count less. We also look at how a monetary policy geared to area-wide average inflation affects these differentials. Our model suggests that area-wide inflation stability and low inflation differentials are complementary.

Keywords: Currency union; inflation differentials; inflation persistence; euro area. (search for similar items in EconPapers)
JEL-codes: E31 E32 E52 F42 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-eec, nep-ifn, nep-mac and nep-mon
Date: 2004-09
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Related works:
Journal Article: Euro Area Inflation Differentials (2007)
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