A shock to inflation is faster to dissipate – even if prices and wages are relatively more rigid – if inflation expectations are more firmly anchored. Now, while the statistical approach has generally failed to spot significant differences across the two areas, structural analysis comes to two main conclusions.
The first is that, in the euro area, prices are distinctly less flexible than in the United States. 1 Second, an inflationary shock dissipates quickly in the euro area despite rigidities, and inflation has a tendency to return to its long-run norm reasonably quickly.