Financial frictions and inflation differentials in a monetary union

Arbeitspapier

This paper employs a stylized New Keynesian DSGE model for a monetary union to analyze whether cyclical inflation differentials can be explained by cross-country differences concerning the characteristics of financial markets. Our results suggest that empirically plausible degrees of heterogeneity with respect to two important credit market characteristics - namely the fraction of borrowers and to a lesser extent the loan-to-value ratio - generate inflation differentials that are similar to those implied by structural differences with respect to price inertia and the degree of competitiveness. Hence, the characteristics of financial markets should be seen as a possible alternative explanation for the observable inflation dispersion in the EMU.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: CESifo Working Paper ; No. 3235

Classification and Topics

• Classification: Wirtschaft ; Business Fluctuations; Cycles ; Financial Markets and the Macroeconomy ; Monetary Policy ; Open Economy Macroeconomics ; General Financial Markets: General (includes Measurement and Data)
• Subject: monetary union ; inflation ; differentials ; collateral constraints ; cross-country heterogeneity ; household indebtedness ; Währungsunion ; Inflation ; Finanzmarkt ; Marktstruktur ; Kreditsicherung ; Verschuldungsrestriktion ; Theorie

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Hristov, Nikolay ; Hülsewig, Oliver ; Wollmershäuser, Timo
• Event: Veröffentlichung
• (who): Center for Economic Studies and ifo Institute (CESifo)
• (where): Munich
• (when): 2010

Further information

• Handle: http://hdl.handle.net/10419/46439
• Last update: 10.03.2025, 11:43 AM CET