Exchange Rates and Inflation under EMU: An Update

Philip Lane and Patrick Honohan

The Institute for International Integration Studies Discussion Paper Series from IIIS

Abstract: In our recent Economic Policy article(Honohan and Lane, 2003), we argued that the strength of the US dollar 1999-2001 had an important impact on inflation divergence within the EMU and in particular the surge in Ireland’s inflation to over 7 per cent. This hypothesis has been subjected to a grueling out-of-sample test: would the dollar’s subsequent weakness contribute to inflation convergence and in particular to a fall in Irish inflation? Fortunately for us, the theory has passed the test with flying colours. Irish inflation stopped dead in its tracks: consumer prices were unchanged between May and November of 2003. Regression analysis on quarterly inflation data across EMU members 1999.1-2004.1 confirms the importance of the exchange rate channel, although pinning down the exact dynamic specification will require a further span of data.

Date: 2005-01-28
New Economics Papers: this item is included in nep-cba, nep-eec, nep-ifn and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
https://www.tcd.ie/triss/assets/PDFs/iiis/iiisdp31.pdf (application/pdf)

Related works:
Working Paper: Exchange Rates and Inflation Under EMU: An Update (2004)
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:iis:dispap:iiisdp031

Access Statistics for this paper

More papers in The Institute for International Integration Studies Discussion Paper Series from IIIS 01. Contact information at EDIRC.
Bibliographic data for series maintained by Maeve ().