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Commodity Price Volatility, Cyclical Fluctuations, and Convergence

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  • Edda Zoli
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    Abstract

    This paper assesses the role of international commodity prices, cyclical fluctuations, and convergence in driving inflation in 18 European emerging economies. Country specific VARs and panel estimates indicate that international commodity price shocks have a significant impact on domestic inflation, but the inflation response is asymmetric for positive and negative shocks. Cyclical fluctuations explain a relative small share of inflation variability, and the inflation response is asymmetric during upturns and downturns. Price convergence is estimated to add nearly 3 percentage points to headline inflation, for the average country whose price level is about 50 percent relative to the EU-15 average.

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    Bibliographic Info

    Paper provided by International Monetary Fund in its series IMF Working Papers with number 09/41.

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    Length: 21
    Date of creation: 01 Mar 2009
    Date of revision:
    Handle: RePEc:imf:imfwpa:09/41

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    Related research

    Keywords: Commodity prices; Emerging markets; Economic models; inflation; price inflation; price level; inflation response; monetary fund; relative prices; relative price; inflation rates; money market; inflation equation; inflationary pressure; monetary economics; national bank; inflationary impact; inflation dynamics; average price level; effective exchange rates; real value; increase in inflation; high inflation; maximum inflation;

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    1. Céline Allard, 2007. "Inflation in Poland," IMF Working Papers 07/41, International Monetary Fund.
    2. Pesaran, M.H. & Smith, R., 1992. "Estimating Long-Run Relationships From Dynamic Heterogeneous Panels," Cambridge Working Papers in Economics 9215, Faculty of Economics, University of Cambridge.
    3. 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.
    4. Mark J Flanagan & Felix Hammermann, 2007. "What Explains Persistent Inflation Differentials Across Transition Economies?," IMF Working Papers 07/189, International Monetary Fund.
    5. Felix Hammermann & Mark Flanagan, 2007. "What Explains Persistent Inflation Differentials Across Transition Economies?," Kiel Working Papers 1373, Kiel Institute for the World Economy.
    6. Balazs Egert, 2007. "Real Convergence, Price Level Convergence and Inflation Differentials in Europe," William Davidson Institute Working Papers Series wp895, William Davidson Institute at the University of Michigan.
    7. Balázs �gert, 2007. "Real Convergence, Price Level Convergence and Inflation in Europe," Working Papers 267, Bruegel.
    8. Paul van den Noord & Christophe André, 2007. "Why has Core Inflation Remained so Muted in the Face of the Oil Shock?," OECD Economics Department Working Papers 551, OECD Publishing.
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    Cited by:
    1. Ferrucci, Gianluigi & Jiménez-Rodríguez, Rebeca & Onorante, Luca, 2010. "Food price pass-through in the euro area The role of asymmetries and non-linearities," Working Paper Series 1168, European Central Bank.
    2. Karsten Staehr, 2010. "Income convergence and inflation in Central and Eastern Europe : does the sun always rise in the East," Bank of Estonia Working Papers wp2010-04, Bank of Estonia, revised 22 Mar 2010.

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