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Euro area inflation persistence

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Author Info
Nicoletta Batini () (International Monetary Fund (IMF), 700 19th Street, N.W., Washington DC 20431.)

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Abstract

This paper presents evidence on the lag between monetary policy actions and the response of inflation in the euro area as a whole as well as in Germany, Italy and France. In line with previous findings for the US and the UK, results here show that this lag is longer than one year both in the euro area and in individual countries, and that a lag of this length has existed in Europe at least since the collapse of the Bretton Woods system, despite the numerous changes in European monetary policy regime thereafter. Results based on alternative definitions of inflation persistence support these findings, although, they suggest that at the country level, a drop in German inflation persistence and a sizeable shift in the mean of inflation - particularly in Italy and France - are beyond doubt. The paper shows that euro area inflation persistence could well be an intrinsic phenomenon rather than a ‘statistical fluke’ due to aggregation. JEL Classification: E4; E5.

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Paper provided by European Central Bank in its series Working Paper Series with number 201.

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Length: 59 pages
Date of creation: Dec 2002
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Handle: RePEc:ecb:ecbwps:20020201

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Related research
Keywords: Euro area; Europe; inflation persistence; HICP; monetary transmission; aggregation bias.;

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