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Inflation Differentials of Euro Countries and Their Determinants

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  • Liargovas Panagiotis

    (Department of Management and Technology, University of Peloponnese, 22100 Tripolis, Greece
    School of Economics, Business and Computer Science, University Neapolis Pafos, Pafos 8042, Cyprus
    These authors contributed equally to this work.)

  • Arvanitis Argyrios

    (School of Economics, Business and Computer Science, University Neapolis Pafos, Pafos 8042, Cyprus
    These authors contributed equally to this work.)

Abstract

The purpose of this paper is to examine the inflation differentials and their determinants in the first twelve euro countries that formed the eurozone. We focus on only these countries to capture the effects through the last 22 years from 1999 to 2020, without taking into consideration the changes in dynamics that were caused due to the integration of more countries since 2007. The dynamic panel data results, estimated with the system Generalised Method of Moments estimation method, show that it is mostly structural and cyclical factors that drive inflation differentials among these euro countries and that there are no significant indications that other convergence processes have taken place during this time span to explain increase in certain countries’ inflation. We conclude by mentioning the potential role that inflation differentials could play in the European Central Bank’s decision-making process.

Suggested Citation

  • Liargovas Panagiotis & Arvanitis Argyrios, 2023. "Inflation Differentials of Euro Countries and Their Determinants," Economies, MDPI, vol. 11(10), pages 1-16, October.
    • Handle: RePEc:gam:jecomi:v:11:y:2023:i:10:p:250-:d:1256030
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    References listed on IDEAS

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    1. Jennifer Jager & Kurt Hafner, 2013. "The optimum currency area theory and the EMU," Intereconomics: Review of European Economic Policy, Springer;ZBW - Leibniz Information Centre for Economics;Centre for European Policy Studies (CEPS), vol. 48(5), pages 315-322, September.
    2. Eggertsson, Gauti & Ferrero, Andrea & Raffo, Andrea, 2014. "Can structural reforms help Europe?," Journal of Monetary Economics, Elsevier, vol. 61(C), pages 2-22.
    3. Arellano, Manuel & Bover, Olympia, 1995. "Another look at the instrumental variable estimation of error-components models," Journal of Econometrics, Elsevier, vol. 68(1), pages 29-51, July.
    4. Julien Licheron, 2007. "Explaining Inflation Differentials in the Euro Area: Evidence from a Dynamic Panel Data Model," Economie Internationale, CEPII research center, issue 112, pages 73-97.
    5. Rogers, John H., 2007. "Monetary union, price level convergence, and inflation: How close is Europe to the USA?," Journal of Monetary Economics, Elsevier, vol. 54(3), pages 785-796, April.
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