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The Risk of Inflation Dispersion in the Euro Area

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  • Lhuissier, Stéphane
  • Ortmans, Aymeric
  • Tripier, Fabien

Abstract

We document the time-varying divergence of predictive inflation distributions across euro area countries and explore their macroeconomic origins. While the dispersion of inflation rates mainly concerns upside inflation risks during the first decade of the euro area, it shifted to downside inflation risks during the second decade. The dispersion of downside and upside risks to inflation reaches record levels in the wake of the COVID crisis. The main determinant of the dispersion at the bottom of the distribution is the development of financial stress. In the wake of the COVID crisis, value chain pressures drove the dispersion of upside inflation risks. Overall, the dispersion of inflation rates is largely caused by heterogeneous Phillips curves between countries rather than by different national economic contexts.

Suggested Citation

  • Lhuissier, Stéphane & Ortmans, Aymeric & Tripier, Fabien, 2022. "The Risk of Inflation Dispersion in the Euro Area," CEPREMAP Working Papers (Docweb) 2212, CEPREMAP.
    • Handle: RePEc:cpm:docweb:2212
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    More about this item

    Keywords

    Inflation; Inflation-at-Risk; Inflation dispersion; Monetary Union; Euro area;
    All these keywords.

    JEL classification:

    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • F45 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Macroeconomic Issues of Monetary Unions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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