IMF Working Papers

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

By Yasser Abdih, Li Lin, Anne-Charlotte Paret

August 22, 2018

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Yasser Abdih, Li Lin, and Anne-Charlotte Paret. Understanding Euro Area Inflation Dynamics: Why So Low for So Long?, (USA: International Monetary Fund, 2018) accessed November 5, 2024

Disclaimer: 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.

Summary

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.

Subject: Import prices, Inflation, Inflation persistence, Labor, Labor markets, Output gap, Prices, Production

Keywords: Core HICP inflation, Euro area inflation, Global, Import prices, Inflation, Inflation development, Inflation dynamics, Inflation expectation, Inflation persistence, Inflation persistence and expectations, Inflation process, Inflation puzzle, Labor markets, Output gap, Phillips curve, Stickier inflation, Understanding Euro area inflation dynamics, WP

Publication Details

  • Pages:

    25

  • Volume:

    ---

  • DOI:

    ---

  • Issue:

    ---

  • Series:

    Working Paper No. 2018/188

  • Stock No:

    WPIEA2018188

  • ISBN:

    9781484372562

  • ISSN:

    1018-5941

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