Inflation and Output Comovement in the Euro Area: Love at Second Sight?

ByMichal Andrle, Jan Bruha, Serhat Solmaz

September 11, 2013

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

This paper discusses comovement between inflation and output in the euro area. The strength of the comovement may not be apparent at first sight, but is clear at business cycle frequencies. Our results suggest that at business cycle frequency, the output and core inflation comovement is high and stable, and that 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: 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

Pages:
26
Volume:
2013
DOI:
https://doi.org/10.5089/9781475538939.001
Issue:
192
Series:
Working Paper No. 2013/192
Stock No:
WPIEA2013192
ISBN:
9781475538939
ISSN:
1018-5941

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