Regional Price Adjustment in a Monetary Union: the case of EMU
August 2002
Research Paper
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Using a New-Keynesian framework, we investigate how far the inflationary processes in member states of EMU cause regional price levels to converge. We fail to produce hard evidence of the present existence of such an adjustment mechanism, notwithstanding that inflation in some countries tends to converge towards the euro area level. Overa11, inflation persistence has declined significantly over the years, but there are still marked differences between countries on this score. We conclude that the euro area is not an optimal currency area yet, lending support to the quest for further structura1 reforms in European labour and product markets.
Keywords
Classifications using
Journal of Economic Literature (JEL) Classification System
- E58 : Central Banks and Their Policies
- E31 : Price Level; Inflation; Deflation
- F2 : International Factor Movements and International Business
Automatically Extracted Terms
- inflation
- euro area
- country
- exchange rate
- exchange
- price
- member states
- policy
- paper
- exchange rates
- member
- level
- state
- netherland
- sample
- expectation
- inflation persistence
- inflation dynamics
- european
- persistence
