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Are Non-Euro Area EU Countries Importing Low Inflation from the Euro Area?

Author

Listed:
  • Mr. Plamen K Iossifov
  • Jiri Podpiera
Abstract
The synchronized disinflation across Europe since end-2011 raises the question of whether non-euro area EU countries are affected by the undershooting of the euro area inflation target. To shed light on this issue, we estimate an open-economy, New Keynsian Phillips curve, in which we control for imported inflation. Regression results suggest that falling food and energy prices have been the main disinflationary driver. But low core inflation in the euro area has also had a clear and significant impact. Countries with more rigid exchange-rate regimes and higher share of foreign value added in domestic demand have been more affected. The scope for monetary response to low inflation in non-euro area EU countries depends on concerns about financial stability and unanchoring of inflationary expectations, as well as on exchange rate regime and capital flows dynamics.

Suggested Citation

  • Mr. Plamen K Iossifov & Jiri Podpiera, 2014. "Are Non-Euro Area EU Countries Importing Low Inflation from the Euro Area?," IMF Working Papers 2014/191, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2014/191
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    References listed on IDEAS

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    1. Burstein, Ariel & Gopinath, Gita, 2014. "International Prices and Exchange Rates," Handbook of International Economics, in: Gopinath, G. & Helpman, . & Rogoff, K. (ed.), Handbook of International Economics, edition 1, volume 4, chapter 0, pages 391-451, Elsevier.
    2. Mr. Plamen K Iossifov & Mr. Martin Cihak & Amar Shanghavi, 2008. "Interest Rate Elasticity of Residential Housing Prices," IMF Working Papers 2008/247, International Monetary Fund.
    3. Jordi Galí & Tommaso Monacelli, 2005. "Monetary Policy and Exchange Rate Volatility in a Small Open Economy," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 72(3), pages 707-734.
    4. International Monetary Fund, 2014. "Sweden: Selected Issues," IMF Staff Country Reports 2014/262, International Monetary Fund.
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    Full references (including those not matched with items on IDEAS)

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    Cited by:

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    2. Francesca Caselli, 2017. "Did the Exchange Rate Floor Prevent Deflation in the Czech Republic?," Review of Economics and Institutions, Università di Perugia, vol. 8(2).
    3. M. Ayhan Kose & Hideaki Matsuoka & Ugo Panizza & Dana Vorisek, 2019. "Inflation Expectations: Review and Evidence," Koç University-TUSIAD Economic Research Forum Working Papers 1904, Koc University-TUSIAD Economic Research Forum.
    4. Gani Ramadani & Predrag Pandiloski, 2019. "Disinflationary Spillovers from The Euro Area into the Countries of Southeastern Europe," Journal of Central Banking Theory and Practice, Central bank of Montenegro, vol. 8(3), pages 65-93.
    5. Milan Deskar-Škrbiæ & Antonija Buljan & Mirna Dumèiæ, 2020. "Real interest rate convergence and monetary policy independence in CEE countries," Zbornik radova Ekonomskog fakulteta u Rijeci/Proceedings of Rijeka Faculty of Economics, University of Rijeka, Faculty of Economics and Business, vol. 38(2), pages 349-380.
    6. Jean-Pierre Allegret & Audrey Sallenave, 2015. "Capital flow bonanzas and monetary policy in emerging Europe: responses to the global financial crisis," Post-Communist Economies, Taylor & Francis Journals, vol. 27(4), pages 429-447, December.
    7. Aleksandra Hałka & Karol Szafranek, 2016. "Whose Inflation Is It Anyway? Inflation Spillovers Between the Euro Area and Small Open Economies," Eastern European Economics, Taylor & Francis Journals, vol. 54(2), pages 109-132, March.
    8. Deskar-Škrbić, Milan & Kotarac, Karlo & Kunovac, Davor, 2020. "The third round of euro area enlargement: Are the candidates ready?," Journal of International Money and Finance, Elsevier, vol. 107(C).
    9. Ciccarelli, Matteo & Osbat, Chiara, 2017. "Low inflation in the euro area: Causes and consequences," Occasional Paper Series 181, European Central Bank.
    10. Ahn JaeBin & Park Chang-Gui & Park Chanho, 2017. "Pass-through of imported input prices to domestic producer prices: evidence from sector-level data," The B.E. Journal of Macroeconomics, De Gruyter, vol. 17(2), pages 1-14, June.
    11. International Monetary Fund, 2015. "Cross-Country Report on Inflation: Selected Issues," IMF Staff Country Reports 2015/184, International Monetary Fund.
    12. Juan Carlos Berganza & Pedro del Río & Fructuoso Borrallo, 2016. "Determinants and implications of low global inflation rates," Occasional Papers 1608, Banco de España.
    13. Paweł Gajewski, 2017. "Sources of Regional Inflation in Poland," Eastern European Economics, Taylor & Francis Journals, vol. 55(3), pages 261-276, May.
    14. Jakub Rybacki & Marcin Klucznik & Dawid Sułkowski, 2024. "The false start of disinflation – evidence from the major European economies," Ekonomista, Polskie Towarzystwo Ekonomiczne, issue 1, pages 7-23.

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