Regional Inflation Dynamics within and across Euro Area Countries and a Comparison with the United States

43 Pages Posted: 2 Jan 2009

See all articles by Guenter W. Beck

Guenter W. Beck

Goethe University Frankfurt; Center for Financial Studies

Kirstin Hubrich

Board of Governors of the Federal Reserve System

Massimiliano Giuseppe Marcellino

European University Institute; European University Institute - Robert Schuman Centre for Advanced Studies (RSCAS); Bocconi University - Department of Economics; Centre for Economic Policy Research (CEPR)

Abstract

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.

Suggested Citation

Beck, Guenter W. and Hubrich, Kirstin and Marcellino, Massimiliano, Regional Inflation Dynamics within and across Euro Area Countries and a Comparison with the United States. Economic Policy, Vol. 24, Issue 57, pp. 141-184, January 2009. Available at SSRN: https://ssrn.com/abstract=1319562 or http://dx.doi.org/10.1111/j.1468-0327.2009.00214.x

Guenter W. Beck (Contact Author)

Goethe University Frankfurt ( email )

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HOME PAGE: http://www.wiwi.uni-frankfurt.de/~gbeck

Center for Financial Studies ( email )

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Kirstin Hubrich

Board of Governors of the Federal Reserve System ( email )

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Washington, DC 20551
United States

Massimiliano Marcellino

European University Institute ( email )

Villa Schifanoia
133 via Bocaccio
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Italy

European University Institute - Robert Schuman Centre for Advanced Studies (RSCAS) ( email )

Villa La Fonte, via delle Fontanelle 18
50016 San Domenico di Fiesole
Florence, Florence 50014
Italy

Bocconi University - Department of Economics ( email )

Via Gobbi 5
Milan, 20136
Italy

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

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