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Understanding Euro Area Inflation Dynamics: Why So Low for So Long?
Author: Mr. Yasser Abdih, Ms. Li Lin, and Anne-Charlotte Paret
Series:
IMF Working Papers
Volume/Issue:
Volume 2018: Issue 188
Language:
English
Publication Date:
22 Aug 2018
DOI:
https://doi.org/10.5089/9781484372562.001
ISBN:
9781484372562
ISSN:
1018-5941
Pages:
25
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
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IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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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.
Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund