Inflation and Output Comovement in the Euro Area: Love at Second Sight?
IMF Working Papers, September 11, 2013
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- Inflation and Output Comovement in the Euro Area: Love at Second Sight?
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Bibliographic details
- Authors: Michal Andrle, Jan Bruha, Serhat Solmaz
- Published: September 11, 2013
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781475538939.001
Summary
- Paper title: Inflation and Output Comovement in the Euro Area: Love at Second Sight?
- By Michal Andrle, Jan Bruha, Serhat Solmaz
- Date: September 11, 2013
- Series: Working Paper No. 2013/192
- Pages: 26
- DOI: https://doi.org/10.5089/9781475538939.001
- ISBN: 9781475538939
- ISSN: 1018-5941
Major findings
- The strength of the comovement between inflation and output in the euro area may not be apparent at first sight, but is clear at business cycle frequencies.
- At business cycle frequency, the output and core inflation comovement is high and stable.
- Inflation lags the cycle in output with roughly half of its variance.
- The strong relationship of output and inflation hints at the importance of demand shocks for the euro area business cycle.
Subject areas and keywords
- Subject: Business cycles, Consumer price indexes, Economic growth, Inflation, Inflation targeting, Monetary policy, Prices
- Keywords: business cycle, Business cycles, Consumer price indexes, CPI-t inflation, demand shocks, Europe, Inflation, inflation dynamics, inflation measure, Inflation targeting, inflation-output Comovement, output cycle, output-inflation comovement, trimmed mean, underlying inflation, WP
Implications (inferred from findings)
- The high and stable comovement at business cycle frequencies indicates that measures of core inflation are closely linked to output fluctuations in the euro area.
- The finding that inflation lags the output cycle and accounts for roughly half of its variance suggests that demand shocks play a prominent role in shaping euro area business cycle dynamics.
- Policy considerations: monetary policy frameworks and inflation measures that account for demand-driven inflation dynamics may be particularly relevant for the euro area.
Source: IMF Working Paper No. 2013/192, "Inflation and Output Comovement in the Euro Area: Love at Second Sight?" by Michal Andrle, Jan Bruha, Serhat Solmaz (September 11, 2013).