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Is 2% the optimal inflation rate for the Euro Area?

 

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Author: Caraballo, M. Ángeles
Efthimiadis,Tilemahos
Department: Universidad de Sevilla. Departamento de Economía e Historia Económica
Date: 2012
Published in: International Economics and Economic Policy, 9 (3-4), 235-243.
Document type: Article
Abstract: According to the relevant literatu re, monetary policy implications concerning the optimal inflation rate can be derived by examining the relationship between inflation and the Relative Price Variability (RPV). This paper studies this issue for selected Euro Area (EA) countries, using monthly data for the Harmonized Index of Consumer Prices. In particular, semi-parametric estimations are employed so as to find the accurate form of the inflation-RPV relationship. The results indicate that this relationship exhibits a U-shape functional profile. Furthermore, the optimal inflation rates for the EA, France, Germany and Spain are also calculated. For all countries and the EA, we find that although the European Central Bank ’ s “ below but close to 2 % ” inflation target is optimal for the EA average, it is not the optimum inflation rate for the individual counties.
Cite: Caraballo, M.Á. y Efthimiadis, i. (2012). Is 2% the optimal inflation rate for the Euro Area?. International Economics and Economic Policy, 9 (3-4), 235-243.
Size: 348.1Kb
Format: PDF

URI: https://hdl.handle.net/11441/71969

DOI: 10.1007/s10368-012-0212-9

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