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Modeling Inflation in Croatia

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  • MaruÅ¡ka Vizek
  • Tanja Broz

Abstract

This paper constructs a quarterly inflation model for Croatia, using the general-to-specific approach to model inflation dynamics. A two-step procedure is followed. First, we conduct a long-run sectoral analysis of inflation sources, yielding long-run determinants of inflation: markup, excess money, nominal effective exchange rate, and the output gap. Second, we estimate an equilibrium error correction model of inflation, deploying, among other variables of interest, the long-run solutions derived in the first step. The derived model of inflation suggests that inflation inertia and Croatian trading partners' inflation are most important for explaining the short-run behavior of inflation. Apart from these two variables, markup, excess money, output gap, nominal exchange rate, and broad money also contribute to inflation changes in the short run.

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Bibliographic Info

Article provided by M.E. Sharpe, Inc. in its journal Emerging Markets Finance and Trade.

Volume (Year): 45 (2009)
Issue (Month): 6 (November)
Pages: 87-98

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Handle: RePEc:mes:emfitr:v:45:y:2009:i:6:p:87-98

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Web page: http://mesharpe.metapress.com/link.asp?target=journal&id=111024

Related research

Keywords: cointegration; Croatia; general-to-specific; inflation modeling;

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References

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  1. Payne, James E., 2002. "Inflationary dynamics of a transition economy: the Croatian experience," Journal of Policy Modeling, Elsevier, vol. 24(3), pages 219-230, June.
  2. 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.
  3. Toshitaka Sekine, 2001. "Modeling and Forecasting Inflation in Japan," IMF Working Papers 01/82, International Monetary Fund.
  4. R. Golinelli & R. Orsi, 2001. "Hungary and Poland," Working Papers 424, Dipartimento Scienze Economiche, Universita' di Bologna.
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Cited by:
  1. Valerija Botric, 2012. "NAIRU estimates for Croatia," Zbornik radova Ekonomskog fakulteta u Rijeci/Proceedings of Rijeka Faculty of Economics, University of Rijeka, Faculty of Economics, vol. 30(1), pages 163-180.
  2. Fakhri, Hasanov & Khudayar, Hasanli, 2011. "Why had the Money Market Approach been irrelevant in explaining inflation in Azerbaijan during the rapid economic growth period?," MPRA Paper 29559, University Library of Munich, Germany.
  3. Boromisa, Ana-Maria & Knezović, Sandro, 2008. "Croatia: Integration Perspectives and Synergic Effects of European Transformation in the Countries Targeted by EU Enlargement and Neighbourhood Policies Economy," MPRA Paper 23971, University Library of Munich, Germany.
  4. Zapodeanu Daniela & Gavris Natalia & Leac Dafina Roxana & Teudan Ana - Maria, 2011. "A Liniar Model Of Analyzing Inflation In Romania, Bulgaria, Turkey And Croatia," Annals of Faculty of Economics, University of Oradea, Faculty of Economics, vol. 1(2), pages 445-451, December.

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