Inflation Differentials in New EU Member States: Empirical Evidence
In this paper, the authors examine the determinants of inflation differentials in a panel of the new European Union member states vis-a-vis the euro area in 1997–2007. Their main results are as follows. Exchange rate appreciation and a higher price level in the new EU members is associated with a narrower inflation differential vis-a-vis the euro area, while a fiscal deficit and a positive output gap seem to contribute to a higher inflation differential. Nevertheless, the effect of price convergence on inflation differentials is found to be dominant in these countries, suggesting that a country with a price level 20 % below the euro area average is likely to exhibit inflation nearly one percentage point above that in the euro area. Overall, the authors´ results indicate that real convergence factors rather than cyclical variation are more important for inflation developments in the new EU members as compared to the euro area.
Volume (Year): 58 (2008)
Issue (Month): 07-08 (Oktober)
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- Bal??zs ??gert, & L??szl?? Halpern & Ronald MacDonald, 2005. "Equilibrium Exchange Rates in Transition Economies: Taking Stock of the Issues," William Davidson Institute Working Papers Series wp793, William Davidson Institute at the University of Michigan.
- Martin Cihak & Tomas Holub, 2005. "Price Convergence in EU-Accession Countries: Evidence from the International Comparison," Economie Internationale, CEPII research center, issue 102, pages 59-82.
- Balázs Égert, 2007. "Real Convergence, Price Level Convergence and Inflation in Europe," Working Papers 267, Bruegel.
- Hofmann, Boris & Remsperger, Hermann, 2005. "Inflation differentials among the Euro area countries: Potential causes and consequences," Journal of Asian Economics, Elsevier, vol. 16(3), pages 403-419, June. Full references (including those not matched with items on IDEAS)
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