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