Inflation and Business Cycle Convergence in the Euro Area: Empirical Analysis Using an Unobserved Component Model

WOS:000343715400004 (Nº de Acesso Web of Science)The literature on optimum currency areas states that large inflation differentials can undermine monetary union. In the euro area, inflation rates diverged after the creation of the single currency, but started to converge again from mid-2002. Against this background, we assess the convergence of inflation rates and business cycles and study the relationship between them. The analysis is made using an unobserved component model estimated with the Kalman filter. In general, from 1980 to 2008 inflation rates and business cycles became more aligned in the euro area, but inflation rates converged more quickly than business cycles. The output gap is found to be a better indicator of the business cycle than unit labour cost when studying convergence. By looking at the causality between the convergence of inflation and output gap, it is found that inflation divergence has a limited destabilising economic impact

Introduction: new research in monetary history - A map

This handbook aims to provide a comprehensive (though obviously not exhaustive) picture of state-of-the-art international scholarship on the history of money and currency. The chapters of this handbook cover a wide selection of research topics. They span chronologically from antiquity to nowadays and are geographically stretched from Latin America to Asia, although most of them focus on Western Europe and the USA, as a large part of the existing research does. The authors of these chapters constitute, we hope, a balanced sample of various generations of scholars who contributed to what Barry Eichengreen defined as "the new monetary and financial history" – an approach that combines the analysis of monetary aggregates and policies with the structure and dynamics of the banking sector and financial markets. We have structured this handbook in ten broad thematic parts: the historical origins of money; money, coinage, and the state; trade, money markets, and international currencies; money and metals; monetary experiments; Asian monetary systems; exchange rate regimes; monetary integration; central banking and monetary policy; and aggregate price shocks. In this introduction, we offer for each part some historical context, a few key insights from the literature, and a brief analytical summary of each chapter. Our aim is to draw a map that hopefully will help readers to organize their journey through this very wide and diverse research area

Forecasting inflation: The use of dynamic factor analysis and nonlinear combinations

This paper considers the problem of forecasting inflation in the United States, the euro area, and the United Kingdom in the presence of possible structural breaks and changing parameters. We examine a range of moving window techniques that have been proposed in the literature. We extend previous works by considering factor models using principal components and dynamic factors. We then consider the use of forecast combinations with time-varying weights. Our basic finding is that moving windows do not produce a clear benefit to forecasting. Time-varying combination of forecasts does produce a substantial improvement in forecasting accuracy

A Suggestion for a Dynamic Multi Factor Model (DMFM)

We provide a new way of deriving a number of dynamic unobserved factors from a set of variables. We show how standard principal components may be expressed in state space form and estimated using the Kalman filter. To illustrate our procedure, we perform two exercises. First, we use it to estimate a measure of the current account imbalances among northern and southern euro area countries that developed during the period leading up to the outbreak of the euro area crisis, before looking at adjustment in the post-crisis period. Second, we show how these dynamic factors can improve forecasting of the euro exchange rate

An investigation into feedback and spatial relationships between banks’ share prices and sovereign bond spreads during the euro crisis

We examine (1) spillover effects between euro-area sovereigns and banking systems within national jurisdictions and (2) cross-country spillovers among ten countries during the euro-area crisis. We find that cross-country spillovers substantially amplify the doom loops between the sovereign and banking sectors. We also provide a test that supports the hypothesis that cross-country spillovers among southern-euro-area countries were of a different order from the spillovers among northern-euro-area countries. Our results also imply that, if shocks are idiosyncratic, spillover effects may help in reducing the impact for northern countries

Cross-Country Spillovers of National Financial Markets and the effectiveness of ECB Policies during the Euro-Area Crises: The view from the south

This paper investigates spillover effects between sovereign ratings and sovereign spreads for five euro-area countries --Greece, Ireland, Italy, Portugal and Spain --using monthly data over the period January 2000 through June 2019. We extend previous work in two ways. First, using spatial estimation, we model and quantify the spillover effects on ratings and spreads among countries. Second, we assess the effectiveness of ECB policies on spreads and ratings. We find significant feedback effects among countries and significant effects of ECB policies

Monetary unions, external shocks and economic performance: A Latin American perspective

Monetary union, Business cycle, Multi nation currency,