Financial Frictions and Inflation Differentials in a Monetary Union

Hristov, Nikolay; Hülsewig, Oliver and Wollmershäuser, Timo (2013): Financial Frictions and Inflation Differentials in a Monetary Union. In: Manchester School

Abstract

This paper presents a stylized New Keynesian dynamic stochastic general equilibrium (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, i.e. the access to credit and the fraction of households holding debt, are a relevant source of inflation dispersion across European Monetary Union (EMU) member countries.

• Item Type: Journal article
• Faculties: Economics; Economics > Chairs > Chair in Public Finance
• Subjects: 300 Social sciences > 330 Economics
• Language: English