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Price Inertia and Nominal Aggregate Demand in Major European Countries

Published online by Cambridge University Press:  17 August 2016

Christian Bordes ,
Michael Driscoll  and
Marc-Olivier Strauss-kahn
Christian Bordes
Affiliation:
Université de Limoges and Banque de France
Michael Driscoll
Affiliation:
Middlesex Polytechnic, London
Marc-Olivier Strauss-kahn
Affiliation:
Banque de France
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Summary

In this paper we report new evidence on the importance of price level inertia in the four major European countries: Germany, Prance, Italy and the United Kingdom. We focus on the sensitivity of the results to different proxies for aggregate demand and different measures of equilibrium (or trend output). Overall, our results confirm the findings of related studies, and show that price level inertia is present to a significant degree in Europe. In addition, monetary aggregates appear to be a poor proxy for aggregate demand because of systematic movements in velocity.

Résumé

Résumé

Cet article présente de nouveaux résultats sur l’importance de l’inertie du niveau des prix dans quatre grands pays européens: la République Fédérale d’Allemagne, la France, l’Italie et la Grande-Bretagne. L’analyse porte spécialement sur la sensibilité des résultats à différentes mesures de la demande agrégée et du niveau d’activité d’équilibre (ou tendanciel). Dans l’ensemble, ces résultats confirment les conclusions d’études similaires, à savoir, une inertie significative du niveau des prix en Europe. En outre, il apparaît que les agrégats monétaires sont de faibles indicateurs du niveau de la demande agrégée en raison de variations systématiques de la vélocité de circulation.

Keywords

130310130310
Type
Research Article
Information
Recherches Économiques de Louvain/ Louvain Economic Review , Volume 55 , Issue 2 , 1989 , pp. 103 - 128
Copyright
Copyright © Université catholique de Louvain, Institut de recherches économiques et sociales 1989 

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Footnotes

*

The authors wish to thank R. Bailey from the University of Birmingham for computing the statistical results reported here. Their thanks also go to Patrice Poncet and any anonymous referee for helpful comments. All errors, however, are the responsibility of the authors, whose views this paper reflects and not necessarily those of the institutions with which they are associated.

References

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