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Monetary policy and inflation persistence in the Eurozone

Author

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  • Carlos J. Rodriguez-Fuentes
  • Antonio Olivera-Herrera
  • David Padron-Marrero

Abstract

The primary goal of the European Central Bank’s (ECB) monetary policy is to achieve price stability. Whereas during the 1980s and 1990s there was a rapid and strong convergence in terms of price differential among the Euro countries, particularly in those countries with higher inflation rates in the past, single monetary policy has proved to be quite inefficient in continuing this trend and has not achieved further reductions in inflation rate differentials within the euro zone. Since the ECB sets the official interest rate according to the average inflation of the euro area, the persistence of such price differentials within the area would mean that the “one size interest rate policy” would not fit all. This paper studies empirically the inflation rate differentials and their persistence in some currency unions with the aim to draw some conclusions for the working of the ECB monetary policy. KEYWORDS: monetary policy; inflation persistence; currency unions

Suggested Citation

  • Carlos J. Rodriguez-Fuentes & Antonio Olivera-Herrera & David Padron-Marrero, 2004. "Monetary policy and inflation persistence in the Eurozone," ERSA conference papers ersa04p218, European Regional Science Association.
    • Handle: RePEc:wiw:wiwrsa:ersa04p218
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    References listed on IDEAS

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    Cited by:

    1. Nikolaos Giannellis, 2010. "Nonlinearity and Inflation Rate Differential Persistence: Evidence from the Eurozone," Working Papers 1011, University of Crete, Department of Economics, revised 01 Oct 2010.
    2. Giannellis, Nikolaos, 2013. "Asymmetric behavior of inflation differentials in the euro area: Evidence from a threshold unit root test," Research in Economics, Elsevier, vol. 67(2), pages 133-144.

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    monetary policy; inflation persistence; currency unions;
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