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When Inflation Again Matters: Do Domestic and Global Output Gaps Determine Inflation in the EU?

Author

Listed:
  • Jana Budova

    (Technical University of Košice, Košice, Slovakia)

  • Veronika Sulikova

    (Technical University of Košice, Košice, Slovakia)

  • Marianna Sinicakova

    (Technical University of Košice, Košice, Slovakia)

Abstract

In this paper, we examine whether domestic or global output gap affects inflation in three panels: the European Union, the peripheral countries of the European Union, and the Eurozone. We have also analysed the impact of these variables on inflation in individual countries of the European Union. To find the determinants of inflation, we employ the Granger causality test and panel regression. The first examined period is from 1Q 1997 to 3Q 2020. The period between 1999 and 2020 is divided into two shorter periods – the precrisis (1999 – 2008) and postcrisis (2009-2020) period. The results of the study show that after the crisis the global output gap predicts the evolution of inflation in the Eurozone panel. On the other hand, the domestic output gap predicts inflation in the European Union. In the precrisis period, the determinant of inflation is the domestic output gap, specifically in the Eurozone panel. In the European Union panel and its peripheral economies, the global output gap determines inflation. In Italy, Lithuania, Estonia, Finland, Latvia, and the Netherlands, the domestic output gap determines inflation. The global output gap determines inflation in the Netherlands, Slovenia, Estonia, and Latvia. We demonstrated that there are two ways dependency among the variables.

Suggested Citation

  • Jana Budova & Veronika Sulikova & Marianna Sinicakova, 2023. "When Inflation Again Matters: Do Domestic and Global Output Gaps Determine Inflation in the EU?," The AMFITEATRU ECONOMIC journal, Academy of Economic Studies - Bucharest, Romania, vol. 25(63), pages 575-575, April.
    • Handle: RePEc:aes:amfeco:v:25:y:2023:i:63:p:575
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    References listed on IDEAS

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    More about this item

    Keywords

    domestic output gap; global output gap; inflation; the Granger causality test; panel data model.;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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