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Divergent Inflation Rates in EMU
Philip R. Lane and Patrick Honohan

Abstract We analyze the sources of divergent national inflation rates among EMU member countries. At one level, we review the Irish ‘outlier' experience; at another, we estimate panel regressions for the 1999-2001 period. We highlight the role played by differential exposure to euro exchange rate movements in explaining inflation divergence. In addition, we find evidence that output gaps and a “price level convergence” effect have also been important. We draw some policy conclusions for the accession countries that are hoping to join EMU.

Last updated 28 August 2014 by IIIS (Email).