Determinants of Inflation and Price Level Differentials Across the Euro Area Countries

40 Pages Posted: 14 Jan 2010

See all articles by Malin Andersson

Malin Andersson

European Central Bank (ECB)

Klaus Masuch

European Central Bank (ECB)

Marc Schiffbauer

University of Bonn

Date Written: December 30, 2009

Abstract

This paper analyses the determinants of inflation differentials and price levels across the euro area countries. Dynamic panel estimations for the period 1999-2006 show that inflation differentials are primarily determined by cyclical positions and inflation persistence. The persistence in inflation differentials appears to be partly explained by administered prices and to some extent by product market regulations. In a cointegrating framework we find that the price level of each euro area country is governed by the levels of GDP per capita.

Keywords: inflation differentials, inflation persistence, price level, convergence

JEL Classification: E32, E52, E43, F2

Suggested Citation

Andersson, Malin and Masuch, Klaus and Schiffbauer, Marc, Determinants of Inflation and Price Level Differentials Across the Euro Area Countries (December 30, 2009). ECB Working Paper No. 1129. Available at SSRN: https://ssrn.com/abstract=1519943

Malin Andersson (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Klaus Masuch

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Marc Schiffbauer

University of Bonn ( email )

Regina-Pacis-Weg 3
Postfach 2220
Bonn, D-53012
Germany

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