Sticky Prices in the Euro Area PDF Download

Author: Luis J. Álvarez
Publisher:
ISBN:
Category :
Languages : en
Pages : 36

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Book Description
This paper presents original evidence on price setting in the euro area at the individual.

Author: Silvia Fabiani
Publisher: Oxford University Press
ISBN: 0198042248
Category : Business & Economics
Languages : en
Pages : 309

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Book Description
This book collects results from ad hoc surveys on firms pricing behavior conducted in 2003 and 2004 by nine National central banks of the Euro area in the context of a joint research project (Eurosystem Inflation Persistence Network). These surveys have proved to be an efficient way to test theories on the pricing strategies of economic agents, documenting, in qualitative terms, the underlying rationale of the observed pricing patterns. The book provides an unprecedented amount of information from more than 11,000 euro area firms, addressing issues such as the relevance of nominal and real rigidities, the information set used by firms in the price setting process, the strategy followed to review prices, the frequency of both price reviews and price changes, the reasons underlying price stickiness, and asymmetries in price adjustment. It also compares results for the euro area to those obtained for other countries by similar studies. Finally, it draws the main implications for theoretical modeling and for monetary policy.

Author: Luis Julián Álvarez González
Publisher:
ISBN:
Category :
Languages : en
Pages : 27

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Book Description

Author: Emmanuel Dhyne
Publisher:
ISBN:
Category : Euro area
Languages : en
Pages : 60

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Book Description

Author: Andreas Jobst
Publisher: International Monetary Fund
ISBN: 1475524471
Category : Business & Economics
Languages : en
Pages : 48

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Book Description
More than two years ago the European Central Bank (ECB) adopted a negative interest rate policy (NIRP) to achieve its price stability objective. Negative interest rates have so far supported easier financial conditions and contributed to a modest expansion in credit, demonstrating that the zero lower bound is less binding than previously thought. However, interest rate cuts also weigh on bank profitability. Substantial rate cuts may at some point outweigh the benefits from higher asset values and stronger aggregate demand. Further monetary accommodation may need to rely more on credit easing and an expansion of the ECB’s balance sheet rather than substantial additional reductions in the policy rate.

Author: Luis J. Alvarez
Publisher:
ISBN:
Category :
Languages : en
Pages : 25

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Book Description

Author: Lars Protze
Publisher: Diplomica Verlag
ISBN: 3836664909
Category : Business & Economics
Languages : en
Pages : 185

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Book Description
Central banks around the world try to influence economic activity by altering nominal interest rates which will have an effect on the real rate. However, this is only possible as long as interest rates are above zero. The case of Japan showed that monetary policy was helpless as nominal rates approached zero. This Book starts with an overview of monetary policy with the restriction that interest rates can not fall below zero. Then optimal monetary policy in a low inflation environment is treated. This is done by using a New Keynesian model with sticky prices. Therefore the model and the necessary optimality conditions will be derived (this will be done extensively in the appendix). After deriving the optimality conditions it will be shown how optimal monetary policy will be conducted. To evaluate the outcome of monetary policy a welfare function will be derived. It will be shown how the welfare function to evaluate the outcome of monetary policy is derived from the utility function of the household. As a result it will be shown that a price level target is welfare maximizing although most central banks nowadays use an inflation target instead. Reasons for an inflation target will be shown in the discussion of the model. The second part of the book describes the inflation dynamics in the euro area to see what monetary authority shall do to prevent the economy from falling into the vicious circle of deflation. Two wage contracting models that describe inflation dynamics in the euro area reasonably well will be explained, the Fuhrer-Moore und the Taylor contracting. After showing the optimal policy it will be discussed how severe the zero bound in the euro area is and what policy alternatives are left when monetary policy is restricted. Finally the results obtained will be discussed to see the pitfalls of price level targeting. The large appendix provides the complete derivation of the model and the optimality conditions.

Author:
Publisher:
ISBN: 9789279111914
Category : Prices
Languages : en
Pages : 206

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Book Description
The goal of this report is to analyze nominal rigidities in the Euro area and evaluate their importance for the functioning of markets. Under flexible exchange rates the adjustment to economic shocks that have different effects across countries can take place through changes in the nominal exchange rates, which alter the real exchange rates. Monetary policy may also be used to mitigate the effects of such shocks. With the introduction of the Euro member countries lost these channels of adjustment to asymmetric shocks. Euroarea countries are characterized by a high degree of openness, integration within the Union and have diversified economies. These features promote symmetric effects of shocks. Nonetheless, when asymmetric shocks do happen, the required adjustment has to rely on changes in prices and wages. The flexibility of prices and wages is, therefore, a crucial issue for EMU members.

Author: Jordi Galí
Publisher:
ISBN:
Category : Economics
Languages : en
Pages : 54

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Book Description
We provide evidence on the fit of the New Phillips Curve (NPQ for the Euro area over the period 1970-1998, and use it as a tool to compare the characteristics of European inflation dynamics with those observed in the U.S. We also analyze the factors underlying inflation inertia by examining the cyclical behavior of marginal costs, as well as that of its two main components, namely, labor productivity and real wages. Some of the findings can be summarized as follows: (a) the NPC fits Euro area data very well, possibly better than U.S. data, (b) the degree of price stickiness implied by the estimates is substantial, but in line with survey evidence and U.S. estimates, (c) inflation dynamics in the Euro area appear to have a stronger forward- looking component (i.e., less inertia) than in the U.S., (d) labor market frictions, as manifested in the behavior of the wage markup, appear to have played a key role in shaping the behavior of marginal costs and, consequently, inflation in Europe.

Author: Giancarlo Corsetti
Publisher: International Monetary Fund
ISBN: 1475516800
Category : Business & Economics
Languages : en
Pages : 49

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Book Description
Sovereign risk premia in several euro area countries have risen markedly since 2008, driving up credit spreads in the private sector as well. We propose a New Keynesian model of a two-region monetary union that accounts for this “sovereign risk channel.” The model is calibrated to the euro area as of mid-2012. We show that a combination of sovereign risk in one region and strongly procyclical fiscal policy at the aggregate level exacerbates the risk of belief-driven deflationary downturns. The model provides an argument in favor of coordinated, asymmetric fiscal stances as a way to prevent selffulfilling debt crises.