Understanding Euro Area Inflation Dynamics: Why So Low for So Long?

Yasser Abdih, Li Lin and Anne-Charlotte Paret

No 2018/188, IMF Working Papers from International Monetary Fund

Abstract: 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.

Keywords: WP; inflation expectation; inflation dynamics; inflation process; inflation puzzle; Inflation; Phillips curve; inflation persistence and expectations; Euro area inflation; core HICP inflation; inflation development; Inflation persistence; Labor markets; Import prices; Output gap; Global; understanding Euro area inflation dynamics; stickier inflation (search for similar items in EconPapers)
Pages: 25
Date: 2018-08-22
References: Add references at CitEc
Citations: View citations in EconPapers (13)

Downloads: (external link)
http://www.imf.org/external/pubs/cat/longres.aspx?sk=46134 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:imf:imfwpa:2018/188

Ordering information: This working paper can be ordered from
http://www.imf.org/external/pubs/pubs/ord_info.htm

Access Statistics for this paper

More papers in IMF Working Papers from International Monetary Fund International Monetary Fund, Washington, DC USA. Contact information at EDIRC.
Bibliographic data for series maintained by Akshay Modi ().