Please use this identifier to cite or link to this item:
http://hdl.handle.net/10071/3687
Author(s): | Lagoa, S. |
Date: | 3-Aug-2012 |
Title: | Determinants of inflation differentials in the euro area: Is the New Keynesian Phillips Curve enough? |
Collection title and number: | DINÂMIA'CET - WP - Working Papers 2011/08 |
DOI (Digital Object Identifier): | 10.7749/dinamiacet-iul.wp.2011.08 |
Keywords: | Inflation Business cycle Convergence New Keynesian Phillips curve Incomplete competition model. |
Abstract: | In the euro area, inflation rates diverged after the creation of the single currency, and started to converge again after mid 2002. Against this background, this paper studies the determinants of inflation differentials in the euro area. We start by using the New Keynesian Phillips Curve (NKPC) to explain inflation differences for a panel of countries. It is found that expected inflation and exchange rate movements are important in causing diverging inflation dynamics, while lagged inflation and exchange rates dynamics are not. Moreover, the Incomplete Competition Model (ICM) adds explanatory power to the NKPC in describing inflation dynamics across countries. Not only the former model is not encompassed by the latter, but also the variables proposed by the ICM turn out as significant: the growth of nominal Unit Labour Cost and the long-run disequilibrium between prices and costs explain inflation differentials. |
Peerreviewed: | Sim |
Access type: | Open Access |
Appears in Collections: | DINÂMIA'CET-WP - Working papers com arbitragem científica |
Files in This Item:
File | Description | Size | Format | |
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DINAMIA_WP_2011-08.pdf | 964,16 kB | Adobe PDF | View/Open |
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