Inflation and Output Comovement in the Euro Area: Love at Second Sight?

Michal Andrle, Jan Bruha and Serhat Solmaz

No 2013/192, IMF Working Papers from International Monetary Fund

Abstract: This paper discusses comovement between inflation and output in the euro area. The strength of the comovement may not be apparent at first sight, but is clear at business cycle frequencies. Our results suggest that at business cycle frequency, the output and core inflation comovement is high and stable, and that inflation lags the cycle in output with roughly half of its variance. The strong relationship of output and inflation hints at the importance of demand shocks for the euro area business cycle.

Keywords: WP; inflation measure; output cycle; underlying inflation; inflation dynamics; inflation-output Comovement; business cycle; demand shocks; trimmed mean; output-inflation comovement; CPI-t inflation; Inflation; Business cycles; Inflation targeting; Consumer price indexes; Europe (search for similar items in EconPapers)
Pages: 26
Date: 2013-09-11
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Citations: View citations in EconPapers (28)

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