Inflation dynamics in central and eastern European countries
AbstractEconomic and Monetary Union (EMU) raises important questions about policy context and design within member states. As EMU membership rises, so it embraces an increasingly diverse range of countries notwithstanding, the qualifying convergence criteria. Given the importance of convergent inflation to the sustainability of EMU with a common monetary policy, understanding the dynamics of inflation is of particular policy importance. This study uses fractional integration methods to analyse inflation dynamics in 12 Central and Eastern European countries. We find evidence of mean-reversion in only seven countries, with different speeds of reversion across countries. Furthermore, employing a recently developed time-series approach, we uncover the existence of multiple statistically distinct I(0)/I(1) regime states in almost all the countries. This raises the possibility that, as and when these countries join EMU, ECB monetary policy aimed at euro wide price stability could potentially transmit quite differently through these economies, resulting in heterogeneous and diverging inflation outcomes.
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Bibliographic InfoPaper provided by Nottingham Trent University, Nottingham Business School, Economics Division in its series Working Papers with number 2012/01.
Date of creation: Mar 2012
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Inflation; Fractional integration; Multiple changes in persistence.;
Find related papers by JEL classification:
- C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models &bull Diffusion Processes
- E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
- E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
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