NBER Working Papers and Publications
|July 2005||Long-Run Determinants of Inflation Differentials in a Monetary Union|
with Pierpaolo Benigno, Diego Rodriguez Palenzuela: w11473
This paper analyzes the long-run determinants of inflation differentials in a monetary union. First, we aim at establishing
some stylized facts relating the regional dispersion in headline inflation rates in the euro area as well as in the main components of the consumer price index. We find that a relatively large proportion of it occurs in the Service category of the EU's harmonized consumer price index (HICP). We then lay out a model of a monetary union with fully flexible prices, the long-run properties of which are analyzed. Our model departs in several respect from the Balassa-Samuelson hypotheses. Our results are in contrast with the result that movements in the real exchange rate are mainly driven by regionally asymmetric productivity shocks in the traded sectors. Our results poin...
Published: Altissimo, Filippo, Pierpaolo Benigno, and Diego Rodriguez Palenzuela. "Long-Run Determinants of Inflation Differentials in a Monetary Union." Moneda y Credito 220 (2005): 205-47.