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Euro area Inflation as a Predictor of National Inflation Rates

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  • Antonella Cavallo
  • Antonio Ribba

Abstract

The stability of inflation differentials is an important condition for the smooth working of a currency area, such as the European Economic and Monetary Union. In the presence of stability, changes in national inflation rates, while holding Euro-area inflation fixed contemporaneously, should be only transitory. If this is the case, the rate of inflation of the whole area can also be interpreted as a predictor, at least in the long run, of the different national inflation rates. However, in this paper we show that this condition is satisfied only for a small number of countries, including France and Italy. Better convergence results for inflation differentials are, instead, found for the USA. Some policy implications are drawn for the Eurozone.

Suggested Citation

  • Antonella Cavallo & Antonio Ribba, 2013. "Euro area Inflation as a Predictor of National Inflation Rates," Department of Economics (DEMB) 0022, University of Modena and Reggio Emilia, Department of Economics "Marco Biagi".
    • Handle: RePEc:mod:dembwp:0022
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    References listed on IDEAS

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    Cited by:

    1. Cavallo, Antonella & Ribba, Antonio, 2015. "Common macroeconomic shocks and business cycle fluctuations in Euro area countries," International Review of Economics & Finance, Elsevier, vol. 38(C), pages 377-392.
    2. Dallari, Pietro & Ribba, Antonio, 2020. "The dynamic effects of monetary policy and government spending shocks on unemployment in the peripheral Euro area countries," Economic Modelling, Elsevier, vol. 85(C), pages 218-232.
    3. Álvarez, Luis J. & Sánchez, Isabel, 2019. "Inflation projections for monetary policy decision making," Journal of Policy Modeling, Elsevier, vol. 41(4), pages 568-585.
    4. Giannellis, Nikolaos & Koukouritakis, Minoas, 2017. "Competitiveness divergence in the Eurozone: The need for symmetric adjustment," Journal of Policy Modeling, Elsevier, vol. 39(5), pages 942-962.
    5. Pietro Dallari & Antonio Ribba, 2019. "The Dynamic Effects of Monetary Policy and Government Spending Shocks on Unemployment in the Peripheral Euro Area Countries," Department of Economics 0143, University of Modena and Reggio E., Faculty of Economics "Marco Biagi".

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    More about this item

    Keywords

    Inflation Differentials; Euro area; Structural Cointegrated VARs; Permanent-transitory Decompositions;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models

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