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Inflation Differentials in Europe: Past Experience and Future Prospects

Author

Listed:
  • Balázs Égert

    (Oesterreichische Nationalbank)

  • Doris Ritzberger-Grünwald

    (Oesterreichische Nationalbank)

  • Maria Antoinette Silgoner

    (Oesterreichische Nationalbank)

Abstract

This paper analyzes past and potential inflation differentials for current EU Member States and the acceding countries. Although inflation differentials decreased significantly over the last ten years or so within the EU-15/EU-12 and the acceding countries, they are still on top of the policy agenda. Indeed there are a number of potential causes of inflation differentials. They range from cyclical factors via the exchange rate pass-through and oil price shocks to differences in productivity advances and changes in indirect taxes. Regarding the impact of these factors on inflation, a number of similarities can be found across countries. At the same time, because differences exist, e.g. in the cyclical position, the degree of openness, oil intensity or dependency as well as price and productivity levels, inflation differentials are not likely to vanish completely in the future. We also argue that the often cited catching-up factors, such as the Balassa-Samuelson effect, seem to be considerably weaker than generally believed. In addition, inflation differentials could be clearly associated with inappropriate national fiscal and structural policies.

Suggested Citation

  • Balázs Égert & Doris Ritzberger-Grünwald & Maria Antoinette Silgoner, 2004. "Inflation Differentials in Europe: Past Experience and Future Prospects," Monetary Policy & the Economy, Oesterreichische Nationalbank (Austrian Central Bank), issue 1, pages 47-72.
    • Handle: RePEc:onb:oenbmp:y:2004:i:1:b:5
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    References listed on IDEAS

    as
    1. Fischer, Björn & Köhler-Ulbrich, Petra & Seitz, Franz, 2004. "The demand for euro area currencies: past, present and future," Working Paper Series 330, European Central Bank.
    2. Helmut Stix, 2004. "How Do Debit Cards Affect Cash Demand? Survey Data Evidence," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 31(2), pages 93-115, June.
    3. Orazio P. Attanasio & Luigi Guiso & Tullio Jappelli, 2002. "The Demand for Money, Financial Innovation, and the Welfare Cost of Inflation: An Analysis with Household Data," Journal of Political Economy, University of Chicago Press, vol. 110(2), pages 317-351, April.
    4. Markus Knell & Helmut Stix, 2003. "How Robust are Money Demand Estimations? A Meta-Analytic Approach," Working Papers 81, Oesterreichische Nationalbank (Austrian Central Bank).
    5. Sheri M. Markose & Yiing Jia Loke, 2003. "Network Effects On Cash-Card Substitution In Transactions And Low Interest Rate Regimes," Economic Journal, Royal Economic Society, vol. 113(487), pages 456-476, April.
    6. repec:zbw:bofrdp:2002_010 is not listed on IDEAS
    7. Jussi Snellman & Jukka Vesala & David Humphrey, 2001. "Substitution of Noncash Payment Instruments for Cash in Europe," Journal of Financial Services Research, Springer;Western Finance Association, vol. 19(2), pages 131-145, April.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Balázs Égert, 2007. "Real Convergence, Price Level Convergence and Inflation in Europe," Working Papers 267, Bruegel.
    2. Balázs Egert, 2007. "Real Convergence, Price Level Convergence and Inflation Differentials in Europe," CESifo Working Paper Series 2127, CESifo.
    3. Michal Franta & Branislav Saxa & Katerina Smidkova, 2007. "Inflation Persistence in New EU Member States: Is It Different Than in the Euro Area Members?," Working Papers 2007/10, Czech National Bank.
    4. Égert, Balázs, 2004. "Assessing equilibrium exchange rates in CEE acceding countries: can we have DEER with BEER without FEER? A critical survey of the literature," BOFIT Discussion Papers 1/2004, Bank of Finland Institute for Emerging Economies (BOFIT).
    5. Jesús Crespo Cuaresma & Maria Silgoner, 2014. "Economic Growth and Inflation in Europe: A Tale of Two Thresholds," Journal of Common Market Studies, Wiley Blackwell, vol. 52(4), pages 843-860, July.
    6. Ian Babetskii & Ales Bulir & Fabrizio Coricelli & Jan Filacek & Michal Franta & Roman Horvath & Branislav Saxa & Katerina Smidkova, 2008. "CNB Economic Research Bulletin: Ten Years of Inflation Targeting," Occasional Publications - Edited Volumes, Czech National Bank, edition 1, volume 6, number rb06/1 edited by Ian Babetskii & Katerina Smidkova, January.
    7. repec:onb:oenbwp:y::i:138:b:1 is not listed on IDEAS
    8. repec:rre:publsh:v:36:y:2006:i:3:p:400-426 is not listed on IDEAS
    9. Thomas Gruber & Doris Ritzberger-Grünwald, 2005. "The Euro Changeover in the New Member States - A Preview," Focus on European Economic Integration, Oesterreichische Nationalbank (Austrian Central Bank), issue 1, pages 52-75.
    10. David Bounie & Abel François, 2006. "Les déterminants de la détention et de l’usage des instruments de paiement : éléments théoriques et empiriques," Revue d'Économie Financière, Programme National Persée, vol. 83(2), pages 159-176.
    11. Popović Svetlana & Janković Irena & Lukić Velimir, 2022. "Inflation and Inflation Differentials in Core Eurozone Countries," Economic Themes, Sciendo, vol. 60(2), pages 165-186, June.
    12. repec:zbw:bofitp:2004_001 is not listed on IDEAS
    13. Jesús Crespo Cuaresma & Maria Antoinette Silgoner, 2004. "Groth effects of inflation in Europe: How low is too low, how high is too high?," Vienna Economics Papers 0411, University of Vienna, Department of Economics.
    14. Markus Knell, 2004. "The Role of Revaluation and Adjustment Factors in Pay-As-You-Go Pension Systems," Monetary Policy & the Economy, Oesterreichische Nationalbank (Austrian Central Bank), issue 2, pages 55-71.

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