Euro Area Inflation and ECB Policy in a Global Environment

Christophe Blot (1) , Jérôme Creel (1) , Paul Hubert (1) , Fabien Labondance (1) , Xavier Ragot (1, 2)

1 OFCE - Observatoire français des conjonctures économiques (Sciences Po)
2 ECON - Département d'économie (Sciences Po)

This paper contributes to the literature investigating the role of global factors in determining Euro area inflation, using a wide list of potential candidates to measure global factors. We show that roughly 50 percent of inflation is explained by global factors; and that the ECB has an impact on the domestic part of inflation. This calls for adjusting the definition of the ECB target to the domestic-driven indicator of inflation which we develop.

Keywords: Inflation; Global factors; Domestic inflation; Principal component analysis; Euro area

Domains: Economics and Finance

Christophe Blot, Jérôme Creel, Paul Hubert, Fabien Labondance, Xavier Ragot. Euro Area Inflation and ECB Policy in a Global Environment. Politica economica, 2016, 3, pp.539-554. ⟨10.1429/85010⟩. ⟨hal-03399733⟩