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Reutter, Michael
Sinn, Hans-Werner
Year of Publication: 
Series/Report no.: 
CESifo Working Paper 377
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.
Inflation target
Balassa-Samuelson effect
Document Type: 
Working Paper

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