Inflation Dynamics and the Cross-Sectional Distribution of Prices in the E.U. Periphery

Constantina Kottaridi, Diego Méndez-Carbajo () and Dimitrios Thomakos
Additional contact information
Diego Méndez-Carbajo: Illinois Wesleyan University, USA
Authors registered in the RePEc Author Service: Diego Mendez-Carbajo

Working Paper series from Rimini Centre for Economic Analysis

Abstract: We explore the connection between inflation and its higher-order moments for three economies in the periphery of the European Union (E.U.), Greece, Portugal and Spain. Motivated by a micro-founded model of inflation determination, along the lines of the hybrid New Keynesian Phillips curve, we examine whether and how much does the cross-sectional skewness in producer prices affect the path of inflation. We develop our analysis with the perspective of economic integration/inflation harmonization (in the E.U.) and discuss the peculiarities of these three economies. We find evidence of a strong positive relation between aggregate inflation and the distribution of relative-price changes for all three countries. A potentially important implication of our results is that, if the cross-sectional skewness of prices is directly related to aggregate inflation, not only the direction but also the magnitude of a nominal shock would influence output and inflation dynamics. Moreover, the effect of such a shock could be received asymmetrically, even when countries share a common currency.

Keywords: Inflation; Cross-sectional distribution of prices; Greece, Portugal, Spain; European Union; Harmonization (search for similar items in EconPapers)
JEL-codes: E31 (search for similar items in EconPapers)
Date: 2007-07
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.rcea.org/RePEc/pdf/wp43_07.pdf

Related works:
Chapter: Inflation Dynamics and the Cross-Sectional Distribution of Prices in the E.U. Periphery (2009)
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:rim:rimwps:43_07

Access Statistics for this paper

More papers in Working Paper series from Rimini Centre for Economic Analysis Contact information at EDIRC.
Bibliographic data for series maintained by Marco Savioli ().