Euro Area Inflation as a Predictor of National Inflation Rates

The stability of inflation differentials is an important condition for the
smooth working of a currency area, such as the European Economic and Monetary Union. In the presence of stability, changes in national inflation rates, while
holding Euro-area inflation fixed contemporaneously, should be only transitory.
If this is the case, the rate of inflation of the whole area can also be interpreted
as a predictor, at least in the long run, of the different national inflation rates.
However, in this paper we show that this condition is satisfied only for a small
number of countries, including France and Italy. Better convergence results for
inflation differentials are, instead, found for the USA.