A Long Run Analysis of Price Dynamics in French Overseas Department : Theoretical and Empirical Considerations
Abstract
French overseas departments are related to national economy in different way. Most of observations suggest that fluctuations are linked more closely to French business cycle than economic fluctuations in USA. This paper seeks to determine the role of French inflation in explaining the price dynamic. We focus on Guadeloupe economy. The first part of this paper considers the theoretical foundations of the price dynamic. A number of useful findings are obtained : in the long run, price growths at the same rate that of French ; economy reacts negatively to national inflationary shock. The second part of the paper discusses evidence on price dynamic, with an emphasis on carefully connecting theoretical models with data analyses. We employ the VAR modelling to disentangle the effect of specific shock and national shock on price gap.