Boschi, Melisso and Girardi, Alessandro (2005): Does one monetary policy fit all? the determinants of inflation in EMU countries. Published in: Current Politics and Economics of Europe , Vol. 1/2, No. 19 (January 2008): pp. 31-62.
Download (285Kb) | Preview
This chapter aims at assessing the long-run determinants and the short-run dynamics of inflation in each country belonging to the European Monetary Union (EMU). Our work complements the recent literature on this topic for the Euro Area as a whole. Detecting such determinants can be crucial in designing structural reforms acting as aside instruments of monetary policy in maintaining price stability. The empirical methodology consists of a reinterpretation of the structural cointegrating VAR approach, which allows for a structural long-run analysis of inflation determinants along with an accurate assessment of its short-run dynamics. The main conclusion emerging from the estimates is that not only the determinants of inflation differ in the countries belonging to the Euro Area, but also that cost-push factors have a considerable role in explaining inflation in most of the countries examined. As a policy implication, a tight monetary policy pursued in those countries whose inflation is mainly driven by costs would result in a contraction of economic activity without exerting relevant effects on price dynamics.
|Item Type:||MPRA Paper|
|Original Title:||Does one monetary policy fit all? the determinants of inflation in EMU countries|
|Keywords:||Inflation, markup, EMU countries, long-run structural VARs, subset VEC models|
|Subjects:||C - Mathematical and Quantitative Methods > C3 - Multiple or Simultaneous Equation Models; Multiple Variables > C32 - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models
E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E31 - Price Level; Inflation; Deflation
E - Macroeconomics and Monetary Economics > E0 - General > E00 - General
E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E37 - Forecasting and Simulation: Models and Applications
|Depositing User:||Melisso Boschi|
|Date Deposited:||05. Feb 2011 14:57|
|Last Modified:||11. Feb 2013 11:50|
Banerjee, A., Cockerell, L., & Russell, B. (2001). An I(2) analysis of inflation and the markup. Journal of Applied Econometrics, 16, 221–240.
Banerjee, A., & Russell, B. (2002a). The relationship between the markup and inflation in the G7 economies and Australia. Review of Economics and Statistics, 83, 377-384.
Banerjee, A., & Russell, B. (2002b). A markup model for forecasting inflation in the Euro Area. European University Institute Working Paper, 2002/16.
Basile, R., de Nardis, S., & Girardi A. (2001). Regional inequalities and cohesion policies in the european union. Working Paper ISAE, 23.
Binder, M., & Pesaran, H. M. (1999). Stochastic growth models and their econometric implications. Journal of Economic Growth, 4, 139-183.
Boschi, M., & Girardi, A. (2005). Euro Area inflation: Long-run determinants and short-run dynamics. ISAE Working Paper, 60. Forthcoming Applied Financial Economics. 31
Bowdler, C., & Jansen, E. S. (2004). A markup model of inflation for the Euro Area. ECB Working Paper, 306.
Brüggemann, R., & Lütkepohl, H. (2001). Lag selection in subset VAR models with an application to a U.S. monetary system. In R. Friedmann, L. Knüppel, & L. Lütkepohl (Eds.), Econometric Studies: A Festschrift in Honour of Joachim Frohn. Münster: LIT Verlag.
Clark, P., Laxton, D., & Rose, D. (1996). Asymmetry in the U.S. output-inflation nexus. IMF Staff Papers, 43, 216-251.
Clements, M. C., & Hendry, D. F. (2001). Forecasting non–stationary economic time series. London: MIT Press.
Davidson, R., & Mackinnon, J. (1993). Estimation and inference in econometrics. Oxford: Oxford University.
de Brouwer, G., & Ericsson, N. R. (1998). Modeling inflation in Australia. Journal of Business and Economic Statistics, 16, 4, 433-449.
European Central Bank (2004). The monetary policy of the ECB. Frankfurt: European Central Bank.
Favero, C. A., Giavazzi, F., & Spaventa, L. (1997). High Yields: The spread on German interest rates. Economic Journal, 107, 956-985.
Franz, W., & Gordon, R. J. (1993). German and American wage and price dynamics. European Economic Review, 37, 719-762.
Gali, J. (1994). Monopolistic competition, business cycles, and the composition of aggregate demand. Journal of Economic Theory, 63, 73–96.
Garratt, A., Lee, K., Pesaran, H. M., & Shin, Y. (2003). A long–run structural macroeconometric model of the UK. Economic Journal, 113, 412–455.
Haldrup, N. (1998). An econometric analysis of I(2) variables. Journal of Economic Surveys, 12, 595–650.
Harvey, A. C. & Jaeger, A. (1993). Detrending, stylized facts and the business cycle. Journal of Applied Econometrics, 8, 231-247.
Johansen, S. (1992). Determination of the cointegration rank in the presence of a linear trend. Oxford Bulletin of Economics and Statistics, 54, 383–397.
Johansen, S. (1995). Likelihood–based inference in cointegrated vector autoregressive models. Oxford: Oxford University Press.
Juselius, K. (2002). Wage, price, and unemployment dynamics and the convergence to purchasing power parity in the Euro Area. Mimeo, University of Copenhagen.
Krolzig, H. M., & and Hendry, D. F. (2001). Computer automation of general to specific model selection procedures. Journal of Economic Dynamics and Control, 25, 6-7, 831-866.
Layard, R., Nickell, S. J., & Jackman, R. (1991). Unemployment: macroeconomic performance and the labor market. Oxford: Oxford University Press.
Osterwald–Lenum, M. (1992). A note with quantiles of the asymptotic distribution of the maximum likelihood cointegration rank test statistics. Oxford Bulletin of Economics and Statistics, 54, 461–472.
Sims, C. A. (1980). Macroeconomics and reality. Econometrica, 48, 1–48.
Sinn, H. W., & Reutter, M. (2000). The minimum inflation rate for Euroland. CESifo Working Paper, 377. 32
Stock, J. H., & Watson, M. W. (1999). Forecasting Inflation. Journal of Monetary Economics, 44, 293–335.