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Inflation dynamics and dual inflation in accession countries: a 'New Keynesian' perspective

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Author Info
Olga Arratibel () (European Central Bank, Kaiserstrasse 29, Postfach 16 03 19, 60066 Frankfurt am Main, Germany.)
Diego Rodriguez-Palenzuela () (European Central Bank, Kaiserstrasse 29, Postfach 16 03 19, 60066 Frankfurt am Main, Germany.)
Christian Thimann () (European Central Bank, Kaiserstrasse 29, Postfach 16 03 19, 60066 Frankfurt am Main, Germany.)

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Abstract

This paper examines inflation dynamics in the current EU-accession countries in central and eastern Europe, focusing particularly on the determinants of "dual inflation", that is, diverging inflation rates for tradable and non-tradable goods. The paper draws on the recently published data for the Harmonised Index of Consumer Prices (HICP) of the accession countries and, indeed, finds evidence of "dual inflation" in these economies. To test empirically for underlying determinants, the paper borrows from the recently developed New Phillips curve literature. Overall, domestic factors have systematically a stronger impact upon non-tradable goods inflation whereas international factors have a stronger impact over tradable goods inflation. Furthermore, the results point to the possibly very different effects of exchange rate regimes over tradable and non-tradable goods inflation. On the whole, the findings suggest that the Balassa-Samuelson effect is not a prominent factor behind the current experience of "dual inflation" in these countries. JEL Classification: E31; E58; F41; P24.

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Paper provided by European Central Bank in its series Working Paper Series with number 132.

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Length: 48 pages
Date of creation: Mar 2002
Date of revision:
Handle: RePEc:ecb:ecbwps:20020132

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Related research
Keywords: Dual inflation; central and eastern european countries; Balassa-Samuelson effect; new Keynesian Phillips curve; exchange rate regimes.;

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Atish R. Ghosh, 1997. "Inflation in Transition Economies: How Much? and Why?," IMF Working Papers 97/80, International Monetary Fund.
  2. Richard Clarida & Jordi Gali & Mark Gertler, 1999. "The Science of Monetary Policy: A New Keynesian Perspective," Journal of Economic Literature, American Economic Association, vol. 37(4), pages 1661-1707, December. [Downloadable!] (restricted)
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  3. Rogoff, Kenneth, 1985. "The Optimal Degree of Commitment to an Intermediate Monetary Target," The Quarterly Journal of Economics, MIT Press, vol. 100(4), pages 1169-89, November. [Downloadable!] (restricted)
  4. Barro, Robert J & Gordon, David B, 1983. "A Positive Theory of Monetary Policy in a Natural Rate Model," Journal of Political Economy, University of Chicago Press, vol. 91(4), pages 589-610, August. [Downloadable!] (restricted)
    Other versions:
  5. Craig Beaumont & Robert J. Corker & Dora M. Iakova & Rachel van Elkan, 2000. "Exchange Rate Regimes in Selected Advanced Transition Economies - Coping with Transition, Capital Inflows, and EU Accession," IMF Policy Discussion Papers 00/3, International Monetary Fund.
  6. Stanley Fischer & Ratna Sahay & Carlos A. Végh Gramont, 1998. "How Far is Eastern Europe from Brussels?," IMF Working Papers 98/53, International Monetary Fund.
  7. Gregorz W. Kolodko, 2000. "Globalization and Catching-Up - From Recession to Growth in Transition Economies," IMF Working Papers 00/100, International Monetary Fund.
  8. Mihály András Kovács & András Simon, 1998. "The components of the real exchange rate in Hungary," MNB Working Papers 1998/3, Magyar Nemzeti Bank (The Central Bank of Hungary). [Downloadable!]
  9. Gali, Jordi & Gertler, Mark, 1999. "Inflation dynamics: A structural econometric analysis," Journal of Monetary Economics, Elsevier, vol. 44(2), pages 195-222, October. [Downloadable!] (restricted)
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  10. Bela Balassa, 1964. "The Purchasing-Power Parity Doctrine: A Reappraisal," Journal of Political Economy, University of Chicago Press, vol. 72, pages 584. [Downloadable!] (restricted)
  11. Jordi Gali & Tommaso Monacelli, 1999. "Optimal Monetary Policy and Exchange Rate Volatility in a Small Open Economy," Boston College Working Papers in Economics 438, Boston College Department of Economics, revised 15 Nov 1999. [Downloadable!]
  12. Helmut Wagner, 1998. "Central Banking in Transition Countries," IMF Working Papers 98/126, International Monetary Fund.
  13. Gabriel Fagan & Jérôme Henry & Ricardo Mestre, 2001. "An area-wide model (AWM) for the euro area," Working Paper Series 42, European Central Bank. [Downloadable!]
  14. Lars E.O. Svensson, 1997. "Optimal Inflation Targets, `Conservative' Central Banks, and Linear Inflation Contracts," NBER Working Papers 5251, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
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