The minimum inflation rate for Euroland

Michael Reutter; Hans-Werner Sinn

As a result of the Balassa effect relative prices change rapidly between and within the euro countries. Thus it is impossible to find a common monetary policy that will result in price stability in all countries. Based on empirical estimates of the Balassa model, the paper calculates a minimum aggregate inflation rate which is compatible with the requirement that no country face a deflation. This minimum aggeragate inflation rate is 0.94% in the euro-11 countries and 1.13% in an extended Europe which incorporates the east European countries.

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Year of publication:	2000
Authors:	Reutter, Michael ; Sinn, Hans-Werner
Publisher:	München : CESifo
Subject:	inflation target \| Balassa-Samuelson effect \| ECB \| Inflationssteuerung \| Inflation targeting \| Eurozone \| Euro area \| EU-Staaten \| EU countries \| Inflationsrate \| Inflation rate \| Balassa-Samuelson-Effekt \| Inflation