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Inflation Dynamics and the Cross-Sectional Distribution of Prices in the E.U. Periphery

In: International Trade and Economic Dynamics

Author

Listed:
  • Constantina Kottaridi

    (University of Peloponnese)

  • Mendez-Carbajo Diego

    (Illinois Wesleyan University)

  • D. Thomakos Dimitrios

    (University of Peloponnese)

Abstract

We explore the connection between inflation and its higher-order moments for three economies in the periphery of the European Union (E.U.), Greece, Portugal, and Spain. Motivated by a micro-founded model of inflation determination, along the lines of the hybrid New Keynesian Phillips curve, we examine whether and how much the cross-sectional skewness in producer prices affects the path of inflation. We develop our analysis with the perspective of economic integration/inflation harmonization (in the E.U.) and discuss the peculiarities of these three economies. We find evidence of a strong positive relation between aggregate inflation and the distribution of relative-price changes for all three countries. A potentially important implication of our results is that, if the cross-sectional skewness of prices is directly related to aggregate inflation, not only the direction but also the magnitude of a nominal shock would influence output and inflation dynamics. Moreover, the effect of such a shock could be received asymmetrically, even when countries share a common currency.

Suggested Citation

  • Constantina Kottaridi & Mendez-Carbajo Diego & D. Thomakos Dimitrios, 2009. "Inflation Dynamics and the Cross-Sectional Distribution of Prices in the E.U. Periphery," Springer Books, in: Takashi Kamihigashi & Laixun Zhao (ed.), International Trade and Economic Dynamics, pages 449-475, Springer.
    • Handle: RePEc:spr:sprchp:978-3-540-78676-4_30
    DOI: 10.1007/978-3-540-78676-4_30
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    1. Yadavindu Ajit & Taniya Ghosh, 2024. "A Historical perspective on India's inflation persistence: A Quantile analysis," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2024-015, Indira Gandhi Institute of Development Research, Mumbai, India.

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    More about this item

    Keywords

    Euro Area; European Monetary Union; Weak Instrument; Producer Price Index; Monet Econ;
    All these keywords.

    JEL classification:

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

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