Inflation persistence in the Euro area before and after the European Monetary Union

This paper provides new evidence on inflation persistence before and after the European Monetary Union (EMU). Taking into account fractional integration of inflation, we confirm that inflation dynamics differed considerably across Euro area countries before the start of EMU. Since 1999, however, results obtained from panel estimation indicate that the degree of long run inflation persistence has converged. In line with theoretical predictions, we find that the persistence of inflation has significantly decreased in the Euro area, probably as a result of the more effective monetary policy of the ECB.

► Inflation persistence is increasingly used as indicator of monetary policy effectiveness. ► Using fractional integration we find that inflation persistence in the euro area differed before the European Monetary Union. ► Panel estimation shows that inflation persistence has converged and significantly decreased in the Euro area.