We thank Gernot Müller, Anton Nakov, George Bratsiotis and three anonymous referees for very helpful comments and suggestions. We are also grateful to the participants of the 26th Annual Congress of the European Economic Association, the European Meeting of the Econometric Society 2012, the 15th Annual International Conference on Macroeconomic Analysis and International Finance and the CESifo Area Conference on Macro, Money and International Finance for fruitful discussions. The paper is part of the research project: ‘Transmission und Emission makroökonomischer Schocks durch das Bankensystem’. Financial support by the Stiftung Geld und Währung is gratefully acknowledged.
Financial Frictions and Inflation Differentials in a Monetary Union
Article first published online: 29 JUL 2013
© 2013 The University of Manchester and John Wiley & Sons Ltd
The Manchester School
Volume 82, Issue 5, pages 549–595, September 2014
How to Cite
Hristov, N., Hülsewig, O. and Wollmershäuser, T. (2014), Financial Frictions and Inflation Differentials in a Monetary Union. The Manchester School, 82: 549–595. doi: 10.1111/manc.12034
- Issue published online: 8 AUG 2014
- Article first published online: 29 JUL 2013
- Manuscript Accepted: 14 MAY 2013
- Manuscript Received: 18 APR 2012
- Stiftung Geld und Währung
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.