Price Dispersion in the Euro Area: The Case of a Symmetric Oil Price Shock

37 Pages Posted: 22 Jul 2009

See all articles by Kai Carstensen

Kai Carstensen

University of Kiel - Institute of Statistics and Econometrics

Oliver Hülsewig

Munich University of Applied Sciences; CESifo (Center for Economic Studies and Ifo Institute)

Timo Wollmershaeuser

Ifo Institute for Economic Research; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: July 2009

Abstract

This paper studies the causes of price dispersion in the euro area emerging in response to a shock that hits all member countries symmetrically. We use a panel VAR model which is estimated over the period 1996–2007 to generate impulse responses of a range of price and wage variables to an oil price shock. We split our sample of countries into two disjoint groups according to the impact of the oil price shock on the overall price level. While cross–country heterogeneity in the short–run pass–through can be attributed to different weights of energy items in the consumption basket, heterogeneity in the medium–run response of consumer prices is mainly due to a different response of wages and salaries in the industry sector, which can be attributed to different degrees of price and wage rigidities in the member countries.

Keywords: pass-through, oil price shock, euro area inflation, heterogeneity, panel VAR model

JEL Classification: C32, C33, E31

Suggested Citation

Carstensen, Kai and Hülsewig, Oliver and Wollmershaeuser, Timo, Price Dispersion in the Euro Area: The Case of a Symmetric Oil Price Shock (July 2009). CESifo Working Paper Series No. 2718, Available at SSRN: https://ssrn.com/abstract=1437499 or http://dx.doi.org/10.2139/ssrn.1437499

Kai Carstensen

University of Kiel - Institute of Statistics and Econometrics ( email )

Olshausensrabe 40-60
D-24118 Kiel
Germany
+49 431-880-2224 (Phone)
+49 431-880-2673 (Fax)

Oliver Hülsewig

Munich University of Applied Sciences ( email )

Munich
Germany

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

Timo Wollmershaeuser (Contact Author)

Ifo Institute for Economic Research ( email )

Poschingerstrasse 5
Munich, 81879
Germany
+49 89 9224 1406 (Phone)
+49 89 9224 1462 (Fax)

HOME PAGE: http://www.ifo.de/link/wollmershaeuser_t.htm

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
117
Abstract Views
754
Rank
427,613
PlumX Metrics