Determinants of Inflation and Price Level Differentials Across the Euro Area Countries
40 Pages Posted: 14 Jan 2010
Date Written: December 30, 2009
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
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