Testing similarities of short-run inflation dynamics among EU-25 countries after the Euro |
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Authors: | Giulio Palomba Emma Sarno Alberto Zazzaro |
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Institution: | (1) Department of Money and Macroeconomics, Goethe University Frankfurt, Mertonstr. 17, 60054 Frankfurt am Main, Germany |
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Abstract: | In this paper, we introduce two new definitions of pair-wise and multi-wise similarity between short-run dynamics of inflation
rates in terms of equality of forecast functions and show that in the context of invertible ARIMA processes the autoregressive
metric introduced by Piccolo (1990) is a useful measure to evaluate such similarity. Then, we study the similarity of short-run
inflation dynamics across European Union (EU)-25 Member States during the Euro period. Consistent with studies on inflation
differentials and inflation persistence, our findings suggest that after seven years from the launch of the Euro the degree
of similarity of short-run inflation dynamics across Euro area countries is still weak. By contrast, we find that EU countries
not adopting the common currency, whether old EU or new accession Members, display a higher degree of inflation dynamics similarity
both among each other and with Euro area countries. |
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Keywords: | |
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