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Is There a Trade‐Off Between Inflation Variability and Output‐Gap Variability in the EMU Countries?

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  • Philip Arestis
  • Kostas Mouratidis

Abstract

This paper examines the performance of monetary policy in eleven EMU countries for the whole period of the EMS. This is based on the trade‐off between inflation variability and output‐gap variability. To this end, we examine whether the introduction of an implicit inflation targeting by the EMU member countries after the Maastricht Treaty, changed the trade‐off between inflation variability and output‐gap variability. We employ a stochastic volatility model for two sub‐periods of the EMS (i.e. before and after the Maastricht Treaty). We find that the trade‐off varies amongst EMU countries. The implication of these findings is that there are asymmetries in the euro area, due to different economic structures among the member countries of the EMU.

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  • Philip Arestis & Kostas Mouratidis, 2004. "Is There a Trade‐Off Between Inflation Variability and Output‐Gap Variability in the EMU Countries?," Scottish Journal of Political Economy, Scottish Economic Society, vol. 51(5), pages 691-706, November.
    • Handle: RePEc:bla:scotjp:v:51:y:2004:i:5:p:691-706
    DOI: 10.1111/j.0036-9292.2004.00328.x
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    2. Philip Arestis & Andrew Brown & Kostas Mouratidis & Malcolm Sawyer, 2002. "The Euro: Reflections on the first three years," International Review of Applied Economics, Taylor & Francis Journals, vol. 16(1), pages 1-17.
    3. Sweidan, Osama D., 2011. "Inflation variability between central bank's preferences and the structure of the economy: A note," Economic Modelling, Elsevier, vol. 28(1), pages 630-636.
    4. Berument, Hakan & Yuksel, Ebru, 2007. "Effects of adopting inflation targeting regimes on inflation variability," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 375(1), pages 265-273.
    5. Philip Arestis & Kostas Mouratidis, 2004. "Is There a Trade‐Off Between Inflation Variability and Output‐Gap Variability in the EMU Countries?," Scottish Journal of Political Economy, Scottish Economic Society, vol. 51(5), pages 691-706, November.
    6. Bulir, Ales & Hurnik, Jaromir, 2006. "The Maastricht inflation criterion: How unpleasant is purgatory?," Economic Systems, Elsevier, vol. 30(4), pages 385-404, December.
    7. Ales Bulir & Jaromir Hurnik, 2006. "The Maastricht Inflation Criterion: "Saints" and "Sinners"," Working Papers 2006/8, Czech National Bank.
    8. Marjan Petreski, 2009. "A Critique On Inflation Targeting," Journal Articles, Center For Economic Analyses, pages 11-24, December.

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    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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