How Persistent is Disaggregate Inflation? An Analysis Across EU 15 Countries and Hicp Sub-Indices

63 Pages Posted: 13 Dec 2004

See all articles by Patrick Lunnemann

Patrick Lunnemann

Banque Central du Luxembourg

Thomas Y. Mathä

Banque centrale du Luxembourg

Date Written: November 2004

Abstract

This paper analyses the degree of inflation persistence in the EU15, the euro area and each of its member states using disaggregate price indices from the Harmonised Index of Consumer Prices. Our results reveal substantial heterogeneity across countries and indices. The overall results, based on both parametric and non-parametric persistence measures, suggest a very moderate degree of median and mean inflation persistence. For most price indices we are able to reject the unit root hypothesis, as well as the notion of disaggregate inflation exhibiting a high degree of persistence. Durable goods and services tend to be relatively less persistent than other indices. Aggregation effects, both across indices and countries, tend to be present. We find structural breaks both owing to the change in the monetary regime and to the modified treatment of sales in the official HICP series. The latter tends to reduce the measured degree of inflation persistence.

Keywords: Inflation persistence, Mean reversion, Aggregation effect, Structural breaks

JEL Classification: E31, C21, C22, C14

Suggested Citation

Lunnemann, Patrick and Mathä, Thomas Y., How Persistent is Disaggregate Inflation? An Analysis Across EU 15 Countries and Hicp Sub-Indices (November 2004). ECB Working Paper No. 415. Available at SSRN: https://ssrn.com/abstract=617808

Patrick Lunnemann (Contact Author)

Banque Central du Luxembourg ( email )

2, boulevard Royal
L-2983 Luxembourg
Luxembourg

Thomas Y. Mathä

Banque centrale du Luxembourg ( email )

2, bd Royal
L-2983 Luxembourg
Luxembourg
+352 4774 4270 (Phone)
+352 4774 4920 (Fax)

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