The Minimum Inflation Rate for Euroland

Michael Reutter and Hans-Werner Sinn

No 377, CESifo Working Paper Series from CESifo

Abstract: As a result of the Balassa effect relative prices change rapidly between and within the euro countries. Thus it is impossible to find a common monetary policy that will result in price stability in all countries. Based on empirical estimates of the Balassa model, the paper calculates a minimum aggregate inflation rate which is compatible with the requirement that no country face a deflation. This minimum aggeragate inflation rate is 0.94% in the euro-11 countries and 1.13% in an extended Europe which incorporates the east European countries.

Keywords: Inflation target; Balassa-Samuelson effect; ECB (search for similar items in EconPapers)
Date: 2000
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Citations: View citations in EconPapers (21)

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Working Paper: The Minimum Inflation Rate for Euroland (2001)
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