Work detail

Inflation Convergence in the European Union: //the effect of monetary regimes, the global financial crisis and the zero lower bound

Author: Mgr. Václav Brož
Year: 2017 - summer
Leaders: prof. Ing. Evžen Kočenda M.A., Ph.D., DSc.
Consultants:
Work type: Economic Theory
Masters
Language: English
Pages: 102
Awards and prizes:
Link: https://is.cuni.cz/webapps/zzp/detail/177820/
Abstract: Synchronization of inflation cycles is one of the assumptions of the optimum currency area theory and
as the vast majority of the countries of the European Union will have adopted the common currency
at some point in the future, it is reasonable to analyze their inflation convergence even nowadays.
Using the harmonised index of consumer prices measure and employing the highly flexible seemingly
unrelated regressions model built on carefully specified Augmented Dickey-Fuller tests, we uncover a
widespread, sustained and robust occurrence of inflation convergence in the entire EU between 1999
and 2016. Moreover, this methodology allows us to include several dummy variables indicating specific
periods with a potential impact on the process of inflation convergence. In this sense, we show that
price stability-oriented monetary regimes (inflation targeting, constraining exchange rate
arrangement) seem to have a contributive effect, the periods of the global financial crisis and the zero
lower bound generally do not exhibit a distortive one while the impact of implementation of acquis
communautaire remains unclear. Our main conclusions imply that inflation synchronization does not
seem to pose a challenge for further enlargement of the Eurozone.

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