So far apart and yet so close: Should the ECB care about inflation differentials? Bruegel Policy Contribution, Issue 2014/10 September 2014

Inflation rates can differ across regions of monetary unions. We show that in the euro area, the US, Canada, Japan and Australia, inflation rates have been substantially and persistently different in different regions. Differences were particularly substantial in the euro area. Inflation differences can reflect normal adjustment processes such as price convergence or the Balassa-Samuelson effect, or can reflect the different cyclical position of regions. But they can also be the result of economic distortions resulting from segmented markets or unsustainable demand and credit developments fueled by low real interest rates. In normal times, the European Central Bank cannot influence such developments with its single interest rate instrument. However, unconventional policy measures can have different effects on different countries depending on the chosen instrument, and should be used to reduce fragmentation and ensure the proper transmission of monetary policy. The new macro prudential policy tools are unlikely to be practical in addressing inflation divergences. It is crucial to keep the average inflation rate close to two percent so that inflation differentials are possible without deflation in some parts of the euro area, which in turn might endanger area-wide financial stability and price stability.

Optimal monetary and fiscal policy in a currency union

We lay out a tractable model for fiscal and monetary policy analysis in a currency union, and study its implications for the optimal design of such policies. Monetary policy is conducted by a common central bank, which sets the interest rate for the union as a whole. Fiscal policy is implemented at the countrylevel, through the choice of government spending. The model incorporates country-specific shocks and nominal rigidities. Under our assumptions, the optimal cooperative policy arrangement requires that inflation be stabilized at the union level by the common central bank, while fiscal policy is used by each country for stabilization purposes. By contrast, when the fiscal authorities act in a non-coordinated way, their joint actions lead to a suboptimal outcome, and make the common central bank face a trade-off between inflation and output gap stabilization at the union level.

Patterns of convergence and divergence in the euro area

We study the extent of macroeconomic convergence/divergence among euro area countries. Our analysis focuses on four variables (unemployment, inflation, relative prices and the current account), and seeks to uncover the role played by monetary union as a convergence factor by using non-euro developed economies and the pre-EMU period as control samples.

Exchange rate pass-through inflation and wage differentials in late-industrializing economies: the Mexican case

This paper investigates exchange rate pass-through inflation, and the wage bargaining process, in a developing economy in which firms' market power is largely dependent on technical progress embodied in imported intermediates and capital goods. It develops a heterodox model of income distribution, based on theoretical contributions from Latin American structuralists, labor market segmentationists and post-Keynesian writers, and it presents supportive empirical evidence from the Mexican economy.

Impact of the recent inflation on labor skill differentials /

The research for this working paper is sponsored by U.S. Department of Labor contract no. 41-USC 252(c)(3).

Socio-economic, migrant and geographic differentials in coronary heart disease occurrence in New South Wales

Objective: This study examines the variation in coronary heart disease (CHD) mortality and acute myocardial infarction (AMI) by socio-economic status (SES), country of birth (COB) and geography (urban/rural) in the total population of New South Wales (Australia) in 1991-95. Method: CHD deaths and AMI are from complete enumerations of deaths and hospital admissions, respectively; and population denominators are from census information. Data are examined separately by sex, and comparisons of SES groups (based on municipalities), COB and region are analysed using Poisson regression, after adjustment for age. Results: The study identified higher risk for AMI admissions and CHD mortality in lower SES populations with significant linear trends, for both sexes, adjusted for age, region and COB. According to the population attributable fractions (PAF), 23-41% of the risk of CHD occurrence is due to SES lower than the highest quartile. The higher age-adjusted risk for CHD occurrence in rural and remote populations for both sexes, compared with urban communities, was lessened by adjustment for COB, and all but abolished when also adjusted for SES. COB analysis indicated significantly lower age-adjusted AMI admissions and CHD mortality compared with the Australian-born, Conclusions: Higher risks for CHD in rural populations compared with the capital city (Sydney) are due, in part, to lower SES, lesser migrant composition. Implications: Strategies for reducing CHD differentials should consider demographic factors and the fundamental need to reduce socio-economic inequalities, as well as targeting appropriate prevention measures.

Urban and rural suicide differentials in migrants and the Australian-born, New South Wales, Australia 1985-1994

We estimated risk of suicide in adults in New South Wales (NSW) by sex, country of birth and rural/urban residence, after adjusting for age; we also examined youth suicide (age 15-24 years). The study population was the entire population of NSW, Australia, aged greater than or equal to 15 years during the period 1985-1994. Poisson regression was used to examine the relationship between predictor variables and the risk of suicide, with the focus on migrant status and area of residence. A significantly higher risk of suicide was found in male migrants from Northern Europe and Eastern Europe/former USSR, compared to Australian-born males; a significantly lower suicide risk occurred in males from Southern Europe, the Middle East and Asia. In female migrants, those from UK/Eire, Northern Europe, Eastern Europe/former USSR and New Zealand exhibited a significantly higher risk of suicide compared to Australian-born females. A significantly lower risk of suicide occurred in females from the Middle East. Male migrants overall were at significantly lower risk of suicide than the Australian-born, while female migrants overall had a significantly higher risk of suicide than Australian-born females. Among migrant males overall, the rural-urban suicide risk differential was significantly higher for those living in non-metropolitan areas (RR = 1.9; 95% CI: 1.7-2.1). Suicide risk was significantly higher in non-metropolitan male immigrants from the UK/Eire (RR = 1.4; 95% CI: 1.1-1.7), Southern Europe (RR = 1.7; 95% CI: 1.2-2.4), Northern/Western Europe (1.5; 95% CI: 1.2-1.9), the Middle East (RR = 3.8; 95% CI: 1.9-7.8), New :Zealand (RR = 1.4; 95% CI: 1.0-1.8) and 'other' (RR = 2.6; 95% CI: 1.9-3.5), when compared to their urban counterparts. There was no statistically significant difference in suicide risk between rural and urban Australian-born males. For female suicide, significantly lower risk was found in female immigrants living in non-metropolitan areas who were from Northern/Western Europe (RR = 0.7; 95% CI: 0.4-0.96), as well as the Australian-born (RR = 0.7; 95% CI: 0.6-0.8), when compared to their urban counterparts. The non-metropolitan/metropolitan relative risk for suicide in female migrants overall was not significantly different from one. Among male youth there was a significantly higher suicide risk in non-metropolitan areas, with a relative risk estimate of 1.4 for Australian-born youth (95% CI: 1.2-1.5) and 1.7 for migrant youth (95% CI: 1.2-2.4), when compared with metropolitan counterparts. We conclude that suicide among migrant males living in non-metropolitan areas accounts for most of the excess of male suicide in rural NSW, and the significantly lower risk of suicide for non-metropolitan Australian-born women does not apply to migrant women. (C) 1999 Published by Elsevier Science Ltd. All rights reserved.

Inflation targeting and macroeconomic stability in a Post Keynesian economy

This paper examines the compatibility of inflation targeting with an economy that is Post Keynesian in character. We show that in a Post Keynesian environment, policymakers can both set and achieve an inflation target without adverse consequences for the real economy, as long as an appropriate policy mix is chosen. The latitude that policymakers have in making this choice is investigated. One of our key results is that orthodox policy regimes do not provide appropriate policy mixes. Indeed, the more orthodox the policy regime becomes, the less viable is inflation targeting in a Post Keynesian economy.

Inflation Targeting Matters: Evidence from OECD Economies` Sacrifice Ratios

Using data from OECD economies, we show that inflation targeters suffered smaller output losses during disinflations when compared to nontargeters. We also study why some countries choose to inflation target while others do not and find that higher average inflation and smaller debt levels render the adoption of the regime more likely. Applying Heckman`s procedure to control for selection bias does not alter the link between inflation targeting and less costly disinflations.

Who chooses to inflation target?

In this article, we seek what are the factors behind a country`s decision to move to Inflation Targeting. We find that high past inflation, low debt levels and the absence of a nominal exchange rate anchor increase the probability that a country will end up opting for it. (C) 2007 Elsevier B.V. All rights reserved.

Inflation targeting in emerging economies: What do the data say?

In a recent thought-provoking paper, Ball and Sheridan [Ball, L., Sheridan, N., 2005. Does inflation targeting matter? In: Bernanke, B.S., Woodford, M. (Eds.), The Inflation-Targeting Debate, University of Chicago Press] show that the available evidence for a group of developed economies does not lend credence to the belief that adopting an inflation targeting regime (IT) was instrumental in bringing inflation and inflation volatility down. Here, we extend Ball and Sheridan`s analysis for a subset of 36 emerging market economies and find that, for them, the story is quite different. Compared to non-targeters, developing countries adopting the IT regime not only experienced greater drops in inflation, but also in growth volatility, thus corroborating the view that the regime`s ""constrained flexibility"" to deal with adverse shocks delivered concrete welfare gains. (c) 2006 Elsevier B.V. All rights reserved.

Social and psychiatric influences on urban-rural differentials in Australian suicide

The purpose of this study was to investigate urban-rural differentials in Australian suicide rates, and to examine influences that previously have remained largely speculative. Suicide rates for males (all ages and young adults) were significantly higher in rural areas compared to urban areas. Urban-rural suicide rate differences in males were rendered nonsignificant after adjustment for migrant and area socioeconomic status. Adjusting for mental disorder prevalence, in addition to migrant status, reduced the excess suicide risk in rural areas; the excess was reduced further with addition of mental health service utilization. The implications of this study are that socioeconomic circumstances in rural populations contribute to higher male suicide rates compared to urban areas, but these conditions may be partly mediated by mental disorder prevalence and mental health service utilization.