Global excess liquidity roaming the world’s financial markets (or its sudden absence) is sometimes believed to limit sovereign monetary policy even in large economies such as the euro area. However, there is still discussion about what constitutes global excess liquidity and how exactly it...

We study the dynamics of inflation persistence in 45 countries for the period 1960-2008. We use a nonparametric unit root test robust to nonlinearities, error distributions, structural breaks and outliers, many of them typical features of inflation data, and a test for multiple changes in...

Empirical research on the degree and stability of inflation persistence in the US has produced mixed results: some suggest high and unchanged persistence during the last few decades, while others argue in favor of a decline in persistence since the early 1980s. We contribute to this debate by...

Using frequency domain techniques to separate short and long run dynamics and decomposing inflation into its common and idiosyncratic components, we study the regime dependence of the inflation-RPV relation in Argentina and the USA. Under High inflation, strong long-run comovement between RPV...

In this paper we develop and estimate a behavioral model of inflation dynamics with monopolistic competition, staggered price setting and heterogeneous firms. In our stylized framework there are two groups of price setters, fundamentalists and naive. Fundamentalists are forward-looking in the...

This paper elaborates on the alternative measure of persistence recently suggested in Marques (2004), which is based on the idea of mean reversion. A formal distinction between the “unconditional probability of a given process not crossing its mean in period t” and its estimator, is made...

The New Keynesian Phillips Curve is at the center of two raging empirical debates. First, how can purely forward looking pricing account for the observed persistence in aggregate inflation. Second, price-setting responds to movements in marginal costs, which should therefore be the driving force...

This paper estimates a time-varying AR-GARCH model of inflation producing measures of inflation uncertainty for the euro area, and investigates their linkages in a VAR framework, also allowing for the possible impact of the policy regime change associated with the start of EMU in 1999. The main...

This paper provides a comprehensive review of the factors that can cause price levels to diverge and which are at the root of different inflation rates in Europe including the EU-27. Among others, we study the structural and cyclical factors influencing market and non-market-based service, house...

Many empirical studies have found that interest rate have a positive effect on the price level. This paper pursues an obvious, but neglected explanation: interest payments are a cost of production that is at least in part passed on to costumers. A model shows that the cost-push effect of...