Divergent Inflation Rates in Emu

Lane, Philip R.; Honohan, Patrick

doi:10.2139/ssrn.495627

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Divergent Inflation Rates in Emu

IIIS Discussion Paper No. 5

51 Pages Posted: 1 Jun 2005

See all articles by Philip R. Lane

Philip R. Lane

Trinity College (Dublin) - Department of Economics; Centre for Economic Policy Research (CEPR); Central Bank of Ireland

Patrick Honohan

Trinity College Dublin - Department of Economics; Peter G. Peterson Institute for International Economics; Centre for Economic Policy Research (CEPR)

Date Written: July 2003

Abstract

We analyze the sources of divergent national inflation rates among EMU member countries. At one level, we review the Irish 'outlier' experience; at another, we estimate panel regressions for the 1999-2001 period. We highlight the role played by differential exposure to euro exchange rate movements in explaining inflation divergence. In addition, we find evidence that output gaps and a "price level convergence" effect have also been important. We draw some policy conclusions for the accession countries that are hoping to join EMU.

Keywords: Divergent, Inflation, Rates, EMU

Suggested Citation: Suggested Citation

Lane, Philip R. and Honohan, Patrick and Honohan, Patrick, Divergent Inflation Rates in Emu (July 2003). IIIS Discussion Paper No. 5, Available at SSRN: https://ssrn.com/abstract=495627 or http://dx.doi.org/10.2139/ssrn.495627