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Euro area Inflation as a Predictor of National Inflation Rates

Antonella Cavallo () and Antonio Ribba ()

Department of Economics (DEMB) from University of Modena and Reggio Emilia, Department of Economics "Marco Biagi"

Abstract: The stability of inflation differentials is an important condition for the smooth working of a currency area, such as the European Economic and Monetary Union. In the presence of stability, changes in national inflation rates, while holding Euro-area inflation fixed contemporaneously, should be only transitory. If this is the case, the rate of inflation of the whole area can also be interpreted as a predictor, at least in the long run, of the different national inflation rates. However, in this paper we show that this condition is satisfied only for a small number of countries, including France and Italy. Better convergence results for inflation differentials are, instead, found for the USA. Some policy implications are drawn for the Eurozone.

Keywords: Inflation Differentials; Euro area; Structural Cointegrated VARs; Permanent-transitory Decompositions (search for similar items in EconPapers)
JEL-codes: C32 E31 (search for similar items in EconPapers)
Pages: pages 26
Date: 2013-10
New Economics Papers: this item is included in nep-cba, nep-eec, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Related works:
Journal Article: Euro area inflation as a predictor of national inflation rates (2014) Downloads
Working Paper: Euro area inflation as a predictor of national inflation rates (2012) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:mod:dembwp:0022

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