Exchange Rates and Inflation in EMU Countries: Preliminary Empirical Evidence

Abstract

In this paper we assess the role of exchange rate changes in the determination of national inflation rates for EMU member countries. Furthermore, we argue that the reaction of the national inflation rate is different across countries, and that three groups can be identified within the EMU with respect to this reaction: ‘fast adjustment’, ‘slow adjustment’, ‘no adjustment’. These findings are consistent with other findings in the recent empirical literature on inflation convergence in the EMU.