Understanding Euro Area Inflation Dynamics Why So Low For So Long
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Understanding Euro Area Inflation Dynamics Why So Low For So Long
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Author : Mr.Yasser Abdih
language : en
Publisher: International Monetary Fund
Release Date : 2018-08-22
Understanding Euro Area Inflation Dynamics Why So Low For So Long written by Mr.Yasser Abdih and has been published by International Monetary Fund this book supported file pdf, txt, epub, kindle and other format this book has been release on 2018-08-22 with Business & Economics categories.
Despite closing output gaps and tightening labor markets, inflation has remained low in the euro area. Based on an augmented Phillips Curve framework, we find that this phenomenon—sometimes attributed to low global inflation—has been primarily caused by a remarkable persistence of inflation, keeping it low despite the reduction in slack. This feature is shown to be specific to the euro area (in comparison with the United States). Monetary policy needs to stay accommodative to help guide inflation back to target.
Zero Lower Bound And Monetary Policy In The Euro Area
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Author : Lars Protze
language : en
Publisher: Diplomica Verlag
Release Date : 2008-08
Zero Lower Bound And Monetary Policy In The Euro Area written by Lars Protze and has been published by Diplomica Verlag this book supported file pdf, txt, epub, kindle and other format this book has been release on 2008-08 with Business & Economics categories.
Central banks around the world try to influence economic activity by altering nominal interest rates which will have an effect on the real rate. However, this is only possible as long as interest rates are above zero. The case of Japan showed that monetary policy was helpless as nominal rates approached zero. This Book starts with an overview of monetary policy with the restriction that interest rates can not fall below zero. Then optimal monetary policy in a low inflation environment is treated. This is done by using a New Keynesian model with sticky prices. Therefore the model and the necessary optimality conditions will be derived (this will be done extensively in the appendix). After deriving the optimality conditions it will be shown how optimal monetary policy will be conducted. To evaluate the outcome of monetary policy a welfare function will be derived. It will be shown how the welfare function to evaluate the outcome of monetary policy is derived from the utility function of the household. As a result it will be shown that a price level target is welfare maximizing although most central banks nowadays use an inflation target instead. Reasons for an inflation target will be shown in the discussion of the model. The second part of the book describes the inflation dynamics in the euro area to see what monetary authority shall do to prevent the economy from falling into the vicious circle of deflation. Two wage contracting models that describe inflation dynamics in the euro area reasonably well will be explained, the Fuhrer-Moore und the Taylor contracting. After showing the optimal policy it will be discussed how severe the zero bound in the euro area is and what policy alternatives are left when monetary policy is restricted. Finally the results obtained will be discussed to see the pitfalls of price level targeting. The large appendix provides the complete derivation of the model and the optimality conditions.
European Inflation Dynamics
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Author : Jordi Galí
language : en
Publisher:
Release Date : 2001
European Inflation Dynamics written by Jordi Galí and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2001 with Economics categories.
We provide evidence on the fit of the New Phillips Curve (NPQ for the Euro area over the period 1970-1998, and use it as a tool to compare the characteristics of European inflation dynamics with those observed in the U.S. We also analyze the factors underlying inflation inertia by examining the cyclical behavior of marginal costs, as well as that of its two main components, namely, labor productivity and real wages. Some of the findings can be summarized as follows: (a) the NPC fits Euro area data very well, possibly better than U.S. data, (b) the degree of price stickiness implied by the estimates is substantial, but in line with survey evidence and U.S. estimates, (c) inflation dynamics in the Euro area appear to have a stronger forward- looking component (i.e., less inertia) than in the U.S., (d) labor market frictions, as manifested in the behavior of the wage markup, appear to have played a key role in shaping the behavior of marginal costs and, consequently, inflation in Europe.
The Role Of Expectations In Euro Area Inflation Dynamics
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Author : Maritta Paloviita
language : en
Publisher:
Release Date : 2005
The Role Of Expectations In Euro Area Inflation Dynamics written by Maritta Paloviita and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2005 with Inflation (Finance) categories.
Tiivistelmä.
Exploring Trend Inflation Dynamics In Euro Area Countries
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Author : Mónica Correa-López
language : en
Publisher:
Release Date : 2019
Exploring Trend Inflation Dynamics In Euro Area Countries written by Mónica Correa-López and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2019 with categories.
Understanding Euro Area Inflation Dynamics Why So Low For So Long
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Author : Mr.Yasser Abdih
language : en
Publisher: International Monetary Fund
Release Date : 2018-08-22
Understanding Euro Area Inflation Dynamics Why So Low For So Long written by Mr.Yasser Abdih and has been published by International Monetary Fund this book supported file pdf, txt, epub, kindle and other format this book has been release on 2018-08-22 with Business & Economics categories.
Despite closing output gaps and tightening labor markets, inflation has remained low in the euro area. Based on an augmented Phillips Curve framework, we find that this phenomenon—sometimes attributed to low global inflation—has been primarily caused by a remarkable persistence of inflation, keeping it low despite the reduction in slack. This feature is shown to be specific to the euro area (in comparison with the United States). Monetary policy needs to stay accommodative to help guide inflation back to target.
Inflation News And Euro Area Inflation Expectations
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Author : Juan Angel Garcia
language : en
Publisher: International Monetary Fund
Release Date : 2018-07-19
Inflation News And Euro Area Inflation Expectations written by Juan Angel Garcia and has been published by International Monetary Fund this book supported file pdf, txt, epub, kindle and other format this book has been release on 2018-07-19 with Business & Economics categories.
Do euro area inflation expectations remain well-anchored? This paper finds that the protracted period of low (and below-target) inflation in the euro area since 2013 has weakened their anchoring. Testing their sensitivity to inflation and macroeconomic news, this paper expands existing results in two key dimensions. First, by analyzing all available (advanced) inflation releases. Second, the reactions of expectations are investigated at daily, time-varying and intraday frequency regressions to add robustness to our conclusions. Results point to a significant impact of inflation news over recent years that had not been observed before in the euro area.
Market Power And Monetary Policy Transmission
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Author : Mr. Romain A Duval
language : en
Publisher: International Monetary Fund
Release Date : 2021-07-09
Market Power And Monetary Policy Transmission written by Mr. Romain A Duval and has been published by International Monetary Fund this book supported file pdf, txt, epub, kindle and other format this book has been release on 2021-07-09 with Business & Economics categories.
We show that firms’ market power dampens the response of their output to monetary policy shocks, using firm-level data for the United States and a large cross-country firm-level dataset for 14 advanced economies. The estimated impact of a firm’s markup on its response to a monetary policy shock is large enough to materially affect monetary policy transmission. We also find some evidence that the role of markup in monetary policy transmission, while independent from other channels, is greater for firms whose characteristics — notably size and age — are likely to be associated with greater financial constraints. We rationalize these findings through a simple partial equilibrium model in which borrowing constraints amplify disproportionately low-markup firms’ responses to changes in interest rates.
Inflation In Emerging And Developing Economies
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Author : Jongrim Ha
language : en
Publisher: World Bank Publications
Release Date : 2019-02-24
Inflation In Emerging And Developing Economies written by Jongrim Ha and has been published by World Bank Publications this book supported file pdf, txt, epub, kindle and other format this book has been release on 2019-02-24 with Business & Economics categories.
This is the first comprehensive study in the context of EMDEs that covers, in one consistent framework, the evolution and global and domestic drivers of inflation, the role of expectations, exchange rate pass-through and policy implications. In addition, the report analyzes inflation and monetary policy related challenges in LICs. The report documents three major findings: In First, EMDE disinflation over the past four decades was to a significant degree a result of favorable external developments, pointing to the risk of rising EMDE inflation if global inflation were to increase. In particular, the decline in EMDE inflation has been supported by broad-based global disinflation amid rapid international trade and financial integration and the disruption caused by the global financial crisis. While domestic factors continue to be the main drivers of short-term movements in EMDE inflation, the role of global factors has risen by one-half between the 1970s and the 2000s. On average, global shocks, especially oil price swings and global demand shocks have accounted for more than one-quarter of domestic inflation variatio--and more in countries with stronger global linkages and greater reliance on commodity imports. In LICs, global food and energy price shocks accounted for another 12 percent of core inflation variatio--half more than in advanced economies and one-fifth more than in non-LIC EMDEs. Second, inflation expectations continue to be less well-anchored in EMDEs than in advanced economies, although a move to inflation targeting and better fiscal frameworks has helped strengthen monetary policy credibility. Lower monetary policy credibility and exchange rate flexibility have also been associated with higher pass-through of exchange rate shocks into domestic inflation in the event of global shocks, which have accounted for half of EMDE exchange rate variation. Third, in part because of poorly anchored inflation expectations, the transmission of global commodity price shocks to domestic LIC inflation (combined with unintended consequences of other government policies) can have material implications for poverty: the global food price spikes in 2010-11 tipped roughly 8 million people into poverty.
A Bottom Up Reduced Form Phillips Curve For The Euro Area
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Author : Thomas McGregor
language : en
Publisher: International Monetary Fund
Release Date : 2022-12-16
A Bottom Up Reduced Form Phillips Curve For The Euro Area written by Thomas McGregor and has been published by International Monetary Fund this book supported file pdf, txt, epub, kindle and other format this book has been release on 2022-12-16 with Business & Economics categories.
We develop a bottom-up model of inflation in the euro area based on a set of augmented Phillips curves for seven subcomponents of core inflation and auxiliary regressions for non-core items. We use the model’s disaggregated structure to explore which factors drove the deterioration in forecasting performance during the pandemic period and use these insights to improve on the ability to forecast inflation. In the baseline, the projection for core inflation is centered above 3 percent at end-2023, while headline inflation is expected to drop quite sharply over 2023, with energy base effects pulling inflation down from the currently very elevated levels to below 3 percent by 2023q4. The confidence intervals around these projections are wide given elevated uncertainty. We argue that the bottom-up approach offers a useful complement to the forecasters toolbox – even in the current uncertain environment - by improving forecast accuracy, shedding additional light on the drivers of inflation and providing a framework in which to apply ex post judgement in a structured way.