Homogenous inflation persistence in the EA and its monetary-policy relevance: Evidence from local whittle estimates

Jana Budová and Patrik Žihala

Politická ekonomie, vol. preprint, No 1570

Abstract: In the context of growing macroeconomic uncertainty, understanding inflation dynamics is essential for monetary policy analysis. This study examines inflation persistence in the EA across four macroeconomic periods: the pre-crisis period (January 2001 - December 2008), the financial crisis (January 2009 - March 2015), the stabilisation period (April 2015 - July 2021), and the period of sharp inflation increase (August 2021 - April 2023). The analysis was conducted using monthly data and applied the local Whittle estimator to estimate the parameter d - an indicator of long-run (long-memory) persistence. The results show that inflation persistence in the EA is relatively low and homogeneous across member states, which is relevant for interpreting inflation dynamics in the euro area\'s monetary policy environment. However, national-level fiscal measures can influence the duration of inflationary pressures.

Keywords: Inflation; persistence; local Whittle estimator; euro area (search for similar items in EconPapers)
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DOI: 10.18267/j.polek.1556

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