Is There a Trade-Off between Inflation Variability and Output-Gap Variability in the Emu Countries?

16 Pages Posted: 5 Dec 2004

See all articles by Philip Arestis

Philip Arestis

University of Cambridge - Department of Land Economy; Universidad del País Vasco (UPV/EHU)

Kostas Mouratidis

Swansea University

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Abstract

This paper examines the performance of monetary policy in eleven EMU countries for the whole period of the EMS. This is based on the trade-off between inflation variability and output-gap variability. To this end, we examine whether the introduction of an implicit inflation targeting by the EMU member countries after the Maastricht Treaty, changed the trade-off between inflation variability and output-gap variability. We employ a stochastic volatility model for two sub-periods of the EMS (i.e. before and after the Maastricht Treaty). We find that the trade-off varies amongst EMU countries. The implication of these findings is that there are asymmetries in the euro area, due to different economic structures among the member countries of the EMU.

Suggested Citation

Arestis, Philip and Mouratidis, Kostas, Is There a Trade-Off between Inflation Variability and Output-Gap Variability in the Emu Countries?. Scottish Journal of Political Economy, Vol. 51, No. 5, pp. 691-706, November 2004. Available at SSRN: https://ssrn.com/abstract=610480

Philip Arestis (Contact Author)

University of Cambridge - Department of Land Economy ( email )

19 Silver Street
Cambridge, CB3 9EP
United Kingdom

Universidad del País Vasco (UPV/EHU)

Barrio Sarriena s/n
Leioa, Bizkaia 48940
Spain

Kostas Mouratidis

Swansea University ( email )

Singleton Park
Swansea, SA2 8PP
United Kingdom

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