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Firms’ balance sheets and sectoral inflation in the euro area during the financial crisis

Luiza Antoun de Almeida

Economics Letters, 2015, vol. 135, issue C, 31-33

Abstract: Despite the sharp contraction in economic activity following the financial crisis and the subsequent euro area debt crisis, inflation in the euro area (as in other advanced economies) did not fall as much as predicted by standard New Keynesian models. This paper shows empirically that Gilchrist et al. (2015a)’s finding that less liquid US firms increased their prices during the financial crisis is also valid for firms in euro area countries under distress, the so-called GIPS countries. This result corroborates the notion that financial frictions may influence inflation dynamics.

Keywords: Sectoral inflation; Inflation dynamics; Financial crisis; Euro area debt crisis; Financial frictions (search for similar items in EconPapers)
JEL-codes: E3 E5 (search for similar items in EconPapers)
Date: 2015
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Handle: RePEc:eee:ecolet:v:135:y:2015:i:c:p:31-33