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Inflation Dynamics in the New EU Member States: How Relevant Are External Factors?

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Author Info

  • Alexander Mihailov

    ()
    (School of Economics, University of Reading)

  • Fabio Rumler

    ()
    (Economic Analysis Division, Oesterreichische Nationalbank)

  • Johann Scharler

    ()
    (Department of Economics, University of Linz)

Abstract

In this paper we evaluate the relative influence of external versus domestic inflation drivers in the 12 new European Union (EU) member countries. Our empirical analysis is based on the New Keynesian Phillips Curve (NKPC) derived in Gali and Monacelli (2005) for small open economies (SOE). Employing the Generalized Method of Moments (GMM), we find that the SOE NKPC is well supported in the new EU member states. We also find that the inflation process is dominated by domestic variables in the larger countries of our sample, whereas external variables are mostly relevant in the smaller countries.

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Bibliographic Info

Paper provided by Henley Business School, Reading University in its series Economics & Management Discussion Papers with number em-dp2010-04.

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Length: 23 pages
Date of creation: 09 May 2010
Date of revision:
Handle: RePEc:rdg:emxxdp:em-dp2010-04

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Keywords: New Keynesian Phillips Curve; small open economies; inflation dynamics; new EU member countries; GMM estimation;

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References

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  1. Mario Forni & Marc Hallin & Lucrezia Reichlin & Marco Lippi, 2000. "The generalised dynamic factor model: identification and estimation," ULB Institutional Repository 2013/10143, ULB -- Universite Libre de Bruxelles.
  2. Emil Stavrev, 2009. "Forces Driving Inflation in the New EU10 Members," IMF Working Papers 09/51, International Monetary Fund.
  3. Alexander Mihailov & Fabio Rumler & Johann Scharler, 2008. "The Small Open-Economy New Keynesian Phillips Curve: Empirical Evidence and Implied Inflation Dynamics," Economics working papers 2008-17, Department of Economics, Johannes Kepler University Linz, Austria.
  4. Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, vol. 12(3), pages 383-398, September.
  5. Hondroyiannis, George & Swamy, P.A.V.B. & Tavlas, George S., 2008. "Inflation dynamics in the euro area and in new EU members: Implications for monetary policy," Economic Modelling, Elsevier, vol. 25(6), pages 1116-1127, November.
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Cited by:
  1. Jaromir Baxa & Miroslav Plasil & Borek Vasicek, 2012. "Changes in Inflation Dynamics under Inflation Targeting? Evidence from Central European Countries," Working Papers 2012/04, Czech National Bank, Research Department.
  2. Tiwari, Aviral Kumar & Mutascu, Mihai & Andries, Alin Marius, 2013. "Decomposing time-frequency relationship between producer price and consumer price indices in Romania through wavelet analysis," Economic Modelling, Elsevier, vol. 31(C), pages 151-159.
  3. Steffen Ahrens & Stephen Sacht, 2011. "Estimating a High-Frequency New-Keynesian Phillips Curve," Kiel Working Papers 1686, Kiel Institute for the World Economy.
  4. Stephen McKnight & Alexander Mihailov & Kerry Patterson & Fabio Rumler, 2014. "The Predictive Performance of Fundamental Inflation Concepts: An Application to the Euro Area and the United States," Economics & Management Discussion Papers em-dp2014-03, Henley Business School, Reading University.
  5. Ernestas Virbickas, 2012. "New Keynesian Phillips Curve in Lithuania," Bank of Lithuania Working Paper Series 14, Bank of Lithuania.
  6. Maral Shamloo, 2011. "Inflation Dynamics in FYR Macedonia," IMF Working Papers 11/287, International Monetary Fund.
  7. Martina Basarac & Blanka Škrabiæ & Petar Soriæ, 2011. "The Hybrid Phillips Curve: Empirical Evidence from Transition Economies," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 61(4), pages 367-383, August.

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