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Cointegration Approach to Analysing Inflation in Croatia

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Author Info
Lena Malesevic-Perovic (Faculty of Economics, Split, Croatia)
Abstract

The aim of this paper is to analyse the determinants of inflation in Croatia in the period 1994:6-2006:6. We use a cointegration approach and find that increases in wages positively influence inflation in the long-run. Furthermore, in the period from June 1994 onward, the depreciation of the currency also contributed to inflation. Money does not explain Croatian inflation. This irrelevance of the money supply is consistent with its endogeneity to exchange rate targeting, whereby the money supply is determined by developments in the foreign exchange market. The value of inflation in the previous period is also found to be significant, thus indicating some inflation inertia.

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Publisher Info
Article provided by Institute of Public Finance in its journal Financial Theory and Practice.

Volume (Year): 33 (2009)
Issue (Month): 2 ()
Pages: 201-218
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Handle: RePEc:ipf:finteo:v:33:y:2009:i:2:p:201-218

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Related research
Keywords: inflation; Croatia; cointegration;

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References listed on IDEAS
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  1. Boriss Siliverstovs & Olena Bilan, 2005. "Modelling Inflation Dynamics in Transition Economies: The Case of Ukraine," Discussion Papers of DIW Berlin 476, DIW Berlin, German Institute for Economic Research. [Downloadable!]
    Other versions:
  2. Kim, Byung-Yeon, 2001. "Determinants of Inflation in Poland: A Structural Cointegration Approach," BOFIT Discussion Papers 16/2001, Bank of Finland, Institute for Economies in Transition. [Downloadable!]
  3. Josip Funda & Gorana Lukiniæ & Igor Ljubaj, 2007. "Assessment of the Balassa-Samuelson Effect in Croatia," Financial Theory and Practice, Institute of Public Finance, vol. 31(4), pages 321-351. [Downloadable!]
  4. Saikkonen, Pentti & L tkepohl, Helmut & Trenkler, Carsten, 2006. "Break Date Estimation For Var Processes With Level Shift With An Application To Cointegration Testing," Econometric Theory, Cambridge University Press, vol. 22(01), pages 15-68, February. [Downloadable!]
  5. Billmeier, Andreas & Bonato, Leo, 2004. "Exchange rate pass-through and monetary policy in Croatia," Journal of Comparative Economics, Elsevier, vol. 32(3), pages 426-444, September. [Downloadable!] (restricted)
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  6. Masso, Jaan & Staehr, Karsten, 2005. "Inflation dynamics and nominal adjustment in the Baltic States," Research in International Business and Finance, Elsevier, vol. 19(2), pages 281-303, June. [Downloadable!] (restricted)
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  7. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254. [Downloadable!] (restricted)
  8. Carsten Trenkler*, 2005. "The Effects of Ignoring Level Shifts on Systems Cointegration Tests," AStA Advances in Statistical Analysis, Springer, vol. 89(3), pages 281-301, August. [Downloadable!] (restricted)
  9. Dibooglu, Sel & Kutan, Ali M., 2005. "Sources of inflation and output movements in Poland and Hungary: Policy implications for accession to the economic and monetary union," Journal of Macroeconomics, Elsevier, vol. 27(1), pages 107-131, March. [Downloadable!] (restricted)
  10. Hakkio, Craig S. & Rush, Mark, 1991. "Cointegration: how short is the long run?," Journal of International Money and Finance, Elsevier, vol. 10(4), pages 571-581, December. [Downloadable!] (restricted)
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  11. Evan Kraft, 2003. "Monetary Policy under Dollarisation: The Case of Croatia," Comparative Economic Studies, Palgrave Macmillan Journals, vol. 45(3), pages 256-277, September. [Downloadable!] (restricted)
  12. Josef C. Brada & Ali M. Kutan, 2002. "The End of Moderate Inflation in Three Transition Economies?," William Davidson Institute Working Papers Series 433, William Davidson Institute at the University of Michigan Stephen M. Ross Business School. [Downloadable!]
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  13. Gregory D. Hess & Mark E. Schweitzer, 2000. "Does wage inflation cause price inflation?," Policy Discussion Papers, Federal Reserve Bank of Cleveland, issue Apr, pages 1-14. [Downloadable!]
  14. Domac, Iker & Elbirt, Carolos, 1998. "The main determinants of inflation in Albania," Policy Research Working Paper Series 1930, The World Bank. [Downloadable!]
  15. Maruška Vizek & Tanja Broz, 2007. "Modelling Inflation in Croatia," Working Papers 0703, The Institute of Economics, Zagreb. [Downloadable!]
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This page was last updated on 2009-11-26.

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