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Economic Quarterly

Summer 2003

The Euro and Inflation Divergence in Europe

Margarida Duarte

In January 1999, eleven European countries abandoned their respective national currencies and monetary independence to adopt a common currency, the Euro. Inflation dispersion and inflation differentials (with respect to German inflation) within the Euro-area countries have increased after the adoption of the common currency. Countries with higher inflation rates tend to have also had higher GDP growth rates and a lower price level when the Euro was adopted.

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