Money, Prices and the Transition Emu

LIFE Working Paper 95-28

Posted: 3 May 1998

See all articles by Hans M. Groeneveld

Hans M. Groeneveld

Tias School for Business and Society

Kees C. G. Koedijk

Tilburg University - Department of Finance

Clemens J.M. Kool

Utrecht University - School of Economics

Date Written: 1995

Abstract

In this paper we examine the impact of domestic and ERM-wide monetary conditions on national inflation rates in Belgium, France, Germany, Italy and the Netherlands for the period 1973-1994 and two sub periods using an extended open-economy version of the standard P*-model. The results show that the domestic price gaps have gradually been crowded out by the European price gap since the establishment of the ERM for the four non-anchor countries, indicating a loss of monetary autonomy. For Germany, both the domestic and the European price gap are significant after 1986. Although Germany still has a certain degree of monetary independence, the results show that monetary conditions in Germany's immediate neighbors increasingly matter for inflation in Germany. This points to the need for greater attention for the development of aggregate European monetary conditions by all countries, including Germany, and closer coordination of monetary policy.

JEL Classification: E52, E31

Suggested Citation

Groeneveld, Hans M. and Koedijk, Kees G. and Kool, Clemens J.M., Money, Prices and the Transition Emu (1995 ). LIFE Working Paper 95-28. Available at SSRN: https://ssrn.com/abstract=4106

Hans M. Groeneveld

Tias School for Business and Society ( email )

PO Box 17100
3500 HG Utrecht
Utrecht, 3500 HG
Netherlands

Kees G. Koedijk (Contact Author)

Tilburg University - Department of Finance ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands
+31 13 4663048 (Phone)
+31 13 4662052 (Fax)

Clemens J.M. Kool

Utrecht University - School of Economics ( email )

Kriekenpitplein 21-22
Adam Smith Building
Utrecht, 3584 EC
Netherlands

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