Inflation Persistence and Optimal Monetary Policy in the Euro Area

Pierpaolo Benigno and David Lopez-Salido

Journal of Money, Credit and Banking, 2006, vol. 38, issue 3, 587-614

Abstract: In this paper we present an optimizing-agent model for the euro area to emphasize how the existence of heterogeneity in inflation persistence across regions matters for the design of monetary policy. We find supporting evidence of the existence of such a heterogeneity in inflation dynamics across euro area countries. In particular, based on the estimation of New Keynesian Phillips Curves for five major countries of the euro area, we find that inflation in Germany has a dominant forward-looking component, while in the other group of countries inflation show a significant inertial (backward looking) behavior. Under this circumstance, we study the welfare implications of four monetary policy rules following terms-of-trade shocks: fully optimal, optimal inflation targeting, HICP targeting, and output gap stabilization.

Date: 2006
References: Add references at CitEc
Citations: View citations in EconPapers (104)

Downloads: (external link)
http://dx.doi.org/10.1353/mcb.2006.0038 full text (application/pdf)
Access to full text is restricted to subscribers.

Related works:
Working Paper: Inflation persistence and optimal monetary policy in the Euro Area (2002)
Working Paper: Inflation persistence and optimal monetary policy in the euro area (2002)
Working Paper: Inflation persistence and optimal monetary policy in the euro area (2002)
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:mcb:jmoncb:v:38:y:2006:i:3:p:587-614

Access Statistics for this article

Journal of Money, Credit and Banking is currently edited by Robert deYoung, Paul Evans, Pok-Sang Lam and Kenneth D. West

More articles in Journal of Money, Credit and Banking from Blackwell Publishing
Bibliographic data for series maintained by Wiley-Blackwell Digital Licensing () and Christopher F. Baum ().