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

Author

Listed:
  • Rodriguez-Palenzuela, Diego
  • Thimann, Christian
  • Backé, Peter

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 Harmonized 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. 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

Suggested Citation

  • Rodriguez-Palenzuela, Diego & Thimann, Christian & Backé, Peter, 2002. "Inflation dynamics and dual inflation in accession countries: a 'New Keynesian' perspective," Working Paper Series 132, European Central Bank.
    • Handle: RePEc:ecb:ecbwps:2002132
    Note: 54288
    as

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    File URL: https://www.ecb.europa.eu//pub/pdf/scpwps/ecbwp132.pdf
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    More about this item

    Keywords

    Balassa-Samuelson effect; Central and Eastern European countries; dual inflation; exchange rate regimes; new Keynesian Phillips curve;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • P24 - Political Economy and Comparative Economic Systems - - Socialist and Transition Economies - - - National Income, Product, and Expenditure; Money; Inflation

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