Inflation in the New EU Countries from Central and Eastern Europe : Theories and panel data estimations
AbstractThis paper seeks to identify factors driving consumer price inflation in the new EU member countries from Central and Eastern Europe. Different theories are discussed, including some of particular importance to economies experiencing high economic growth and rapid structural change. The explanatory power of the theories is tested using panel data estimations based on annual data from 1997 to 2007. Convergence- related factors, including the Balassa-Samuelson and the Bhagwati capital-deepening effects, are important drivers of inflation. Import inflation and, by implication, exchange rate developments have an important impact, while the exchange rate regime is unimportant. Higher government debt and larger revenues are associated with higher inflation. The cyclical position as measured by unemployment, employment changes or the current account balance is found to affect inflation. Food price shocks have large but short-lived effects, while energy price shocks have longer-lasting effects on the inflation rate. Multicollinearity across the explanatory variables makes it difficult to identify the effect of each individual factor
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Bibliographic InfoPaper provided by Bank of Estonia in its series Bank of Estonia Working Papers with number wp2010-06.
Date of creation: 26 May 2010
Date of revision: 26 May 2010
Postal: Estonia bld. 13, 15095 Tallinn, ESTONIA
Find related papers by JEL classification:
- E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
- E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
- E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
- P24 - Economic Systems - - Socialist Systems and Transition Economies - - - National Income, Product, and Expenditure; Money; Inflation
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-06-04 (All new papers)
- NEP-CBA-2010-06-04 (Central Banking)
- NEP-EEC-2010-06-04 (European Economics)
- NEP-MAC-2010-06-04 (Macroeconomics)
- NEP-MON-2010-06-04 (Monetary Economics)
- NEP-TRA-2010-06-04 (Transition Economics)
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.:
- Lein, Sarah M. & León-Ledesma, Miguel A. & Nerlich, Carolin, 2008.
"How is real convergence driving nominal convergence in the new EU Member States?,"
Journal of International Money and Finance,
Elsevier, vol. 27(2), pages 227-248, March.
- Lein-Rupprecht, Sarah M. & León-Ledesma, Miguel A. & Nerlich, Carolin, 2007. "How is real convergence driving nominal convergence in the new EU Member States?," Working Paper Series 0827, European Central Bank.
- Paul De Grauwe & Gunther Schnabl, 2008. "Exchange Rate Stability, Inflation, and Growth in (South) Eastern and Central Europe," Review of Development Economics, Wiley Blackwell, vol. 12(3), pages 530-549, 08.
- Czudaj, Robert, 2011. "P-star in times of crisis - Forecasting inflation for the euro area," Economic Systems, Elsevier, vol. 35(3), pages 390-407, September.
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