1887

OECD Economics Department Working Papers

Working papers from the Economics Department of the OECD that cover the full range of the Department’s work including the economic situation, policy analysis and projections; fiscal policy, public expenditure and taxation; and structural issues including ageing, growth and productivity, migration, environment, human capital, housing, trade and investment, labour markets, regulatory reform, competition, health, and other issues.

The views expressed in these papers are those of the author(s) and do not necessarily reflect those of the OECD or of the governments of its member countries.

English, French

Sources of Inflation Persistence in the Euro Area

In recent years, inflation in the euro area has failed to decelerate decisively while cyclical slack built up in the economy. Is this phenomenon more than a peculiarity in recent data? Is it related to structural policy settings? Econometric analysis conducted on two decades of quarterly data covering 17 countries yields a yes on both counts. First, inflation is shown to respond significantly more weakly to cyclical slack in the euro area than in countries such as the United Kingdom, the United States or Canada. Secondly, this lack of responsiveness is found to be related in a statistically significant way to more rigid structural policy settings. The results pass a wide range of robustness checks. This Working Paper relates to the 2005 OECD Economic Survey of the euro area (www.oecd.org/eco/surveys/euroarea).

English

Keywords: monetary policy, inflation, inflation persistence, Economic and Monetary Union
JEL: E58: Macroeconomics and Monetary Economics / Monetary Policy, Central Banking, and the Supply of Money and Credit / Central Banks and Their Policies; E31: Macroeconomics and Monetary Economics / Prices, Business Fluctuations, and Cycles / Price Level; Inflation; Deflation; E32: Macroeconomics and Monetary Economics / Prices, Business Fluctuations, and Cycles / Business Fluctuations; Cycles; E52: Macroeconomics and Monetary Economics / Monetary Policy, Central Banking, and the Supply of Money and Credit / Monetary Policy
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