Regional Inflation Dynamics within and Across Euro Area Countries and a Comparison with the United States
Economic Policy, 2009, 24, 57, 141-184
BECK, Guenter W., HUBRICH, Kirstin, MARCELLINO, Massimiliano, Regional Inflation Dynamics within and Across Euro Area Countries and a Comparison with the United States, Economic Policy, 2009, 24, 57, 141-184 - https://hdl.handle.net/1814/15177
Retrieved from Cadmus, EUI Research Repository
Inflation differentials across regions of an integrated economy can reflect a proper response to demand and supply conditions, but can also indicate distortions with negative welfare implications. Using a novel dataset of regional inflation rates from six euro area countries, we examine the size and persistence of their differentials and find that they appear to be related to factor market distortions and other structural characteristics, rather than to cyclical and growth dynamics. Our empirical analysis shows that only about half of inflation rates variation is accounted for by area-wide factors such as monetary policy or oil price developments. National factors (such as labour market institutions) still play a very important role, and a regional component accounts for about 18% of inflation variability.
Cadmus permanent link: https://hdl.handle.net/1814/15177
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