Inflation Targeting in the Euro Area and the Economic Stability of its Member-States
Europa Working Paper No. 2014/01
23 Pages Posted: 6 Jan 2014
Date Written: January 6, 2014
The aim of this paper is to examine whether the Eurozone constitutes an optimum currency area and by extension, to investigate the existence of a common optimal inflation rate for the member-states. For this purpose, eight euro area countries are examined. Four of the so-called European North – Austria, Germany, Finland and Netherlands – and four of the so-called European South – Greece, Italy, Portugal and Spain. The results indicate more than one group of optimal inflation rates. Consequently, this argument raise questions about the common monetary policy, as well as about the inflation-target and the macro and micro implications on the member-states.
Keywords: Eurozone, inflation-target, optimal inflation rates, monetary policy, relative price variability
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