Competition and inflation differentials in EMU

Andrés, Javier; Ortega, Eva; Vallés, Javier

doi:10.1016/j.jedc.2007.03.006

Cited by 80 publications

(39 citation statements)

References 34 publications

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“…common monetary policy shock, m t , whose standard deviation is calibrated using data from Mojon and Peersman (2003). Following several empirical studies for Europe (see Clarida et al, 2000;Angeloni and Dedola, 1999;André s et al, 2008 among others) we set the interest rate smoothing parameter w equal to 0.8. Finally, we set…”

Section: Calibrationmentioning

confidence: 99%

Labor market institutions and inflation volatility in the euro area

Campolmi

Faia

2011

Journal of Economic Dynamics and Control

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a b s t r a c tDespite having had the same currency for many years, EMU countries still have quite different inflation dynamics. In this paper we explore one possible reason: country specific labor market institutions, giving rise to different inflation volatilities. When unemployment insurance schemes differ, as they do in EMU, reservation wages react differently in each country to area-wide shocks. This implies that real marginal costs and inflation also react differently. We report evidence for EMU countries supporting the existence of a cross-country link over the cycle between labor market structures on the one side and real wages and inflation on the other. We then build a DSGE model that replicates the data evidence. The inflation volatility differentials produced by asymmetric labor markets generate welfare losses at the currency area level of approximately 0.3% of steady state consumption.

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Section: Calibrationmentioning

confidence: 99%

Labor market institutions and inflation volatility in the euro area

Campolmi

Faia

2011

Journal of Economic Dynamics and Control

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“…In Duarte and Wolman (2002) they find that their model can deliver more inflation dispersion than in the data following productivity shocks, while negligible dispersion following government spending shocks. Andrés et al (2008) instead analyze a model with only traded goods, but they allow for price discrimination across countries due to different degrees of market competition. They show that their model can account for sizeable inflation differentials.…”

Section: Modelmentioning

confidence: 99%

Inflation Differentials in a Currency Area: Facts, Explanations and Policy

2010

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The determinants of inflation differentials in a currency area are analyzed both from an empirical and a theoretical perspective. The empirical analysis shows that a sizeable dispersion of HICP inflation rates across euro-area countries arises mostly in the components based on non-traded goods. There is also a significant cross-country heterogeneity in the response to changes in a common latent factor which accounts for a large fraction of the dispersion in national inflation rates. A stylized model of a currency area is used to understand the interrelation among shocks, structures and policies in driving the data generating process. The model shows that the dynamic of the inflation differentials is largely driven by the variability of productivity in the non-tradable sector of the more flexible economy. Conversely, the output differentials is largely driven by the variability in the productivity of the tradable sector, also of the more flexible economy. Optimal policy is investigated together with an analysis of the optimal adjustment to adopting a common currency with initial incorrect real exchange rate parity

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“…can not be used in this class of models. However, it has been shown that the size of the deviation from perfect competition has an impact on the inflationary effects of certain shocks and their persistence [Andrés et al (2008)]. Besides, in recent years there have appeared some theoretical developments, validated by the empirical evidence, showing that productivity growth in developed economies is positively linked to the degree of competition in the product markets.…”

Section: Introductionmentioning

confidence: 99%

The Mark-Ups in the Spanish Economy: International Comparison and Recent Evolution

Estrada

2009

SSRN Journal

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Competition and inflation differentials in EMU

Cited by 80 publications

References 34 publications

Labor market institutions and inflation volatility in the euro area

Labor market institutions and inflation volatility in the euro area

Inflation Differentials in a Currency Area: Facts, Explanations and Policy

The Mark-Ups in the Spanish Economy: International Comparison and Recent Evolution

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