Exchange Rate Movements and Inflation Performance: The Case of Italy
April 1, 1995
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Summary
This paper presents an empirical model to study the response of wages and prices to movements in the nominal exchange rate. A four-equation model is applied to Italian data to evaluate the response of tradeable goods prices, consumer prices, and wages following the lira’s exit from the ERM in the fall of 1992. The model tracks reasonably well the inflation performance of tradeables, especially import prices. But it is argued that structural changes in the labor market contribute to an overprediction of price and wage inflation.
Subject: Consumer prices, Export prices, Import prices, Inflation, Labor, Labor markets, Prices, Wages
Keywords: b. price, competitor price, Consumer prices, Europe, Export prices, goods price, import price, import price increase, Import prices, Inflation, labor cost indicator, labor market, oil price change, oil price effect, output gap, partner country import price, price shock, price variable, productivity, traded goods price, wage-price spiral, Wages, WP
Pages:
28
Volume:
1995
DOI:
Issue:
041
Series:
Working Paper No. 1995/041
Stock No:
WPIEA0411995
ISBN:
9781451846041
ISSN:
1018-5941
