Persistent inflation differentials in Europe

Eva Ortega

No 305, Working Papers from Banco de España

Abstract: This paper studies the recent empirical evidence available on the evolution of the real exchange rates within the main European economies in order to understand the possible main determinants of future inflation differentials within the EMU. The real exchange rate is decomposed into that of the traded sector and the differential across countries of the relative price of the non traded sector. Persistent deviations from PPP are found, also in the traded sector. It is also found that the main factor behind the annual bilateral real appreciation with respect to Germany since 1995 has been the differential growth of relative non traded prices across countries. In the case of France, that differential was mainly explained by a different growth of relative labor productivities in the two economies, while in the case of Spain and Italy it was mainly due to the different growth of relative non-traded markups and wages, respectively.

JEL-codes: E31 F15 (search for similar items in EconPapers)
Pages: 24 pages
Date: 2003-05
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (24)

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Journal Article: Persistent inflation differentials in Europe (2003)
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Persistent link: https://EconPapers.repec.org/RePEc:bde:wpaper:0305

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