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Driving Forces of the Consumer Price Index During the Crises in the Eurozone: Heterogeneous Panel Approach

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  • Jovica Pejčić

    (Department of Economic Theory and Policy, Faculty of Economics in Subotica, University of Novi Sad, 24000 Subotica, Serbia)

  • Olgica Glavaški

    (Department of Economic Theory and Policy, Faculty of Economics in Subotica, University of Novi Sad, 24000 Subotica, Serbia)

  • Marina Beljić

    (Department of Economic Theory and Policy, Faculty of Economics in Subotica, University of Novi Sad, 24000 Subotica, Serbia)

Abstract

This paper examines key driving forces of inflationary pressures, taking into account supply and demand side determinants and actions of policy makers, during the pandemic and geopolitical crises in the Eurozone. Using heterogeneous nonstationary macro-panel models, especially the Mean Group (MG) and Pooled Mean Group (PMG) methods in the period 2020q1–2024q4, it is concluded that the dominant determination of inflationary pressures comes from the supply side. There is a long-run positive equilibrium relationship between the growth of energy prices and the growth of the consumer price index (CPI), and between the index representing supply bottlenecks (SBI) and the growth of CPI, while the relationship with the unemployment rate is insignificant. Also, the existence of a long-run equilibrium between the interest rate and CPI is homogeneous due to the unique monetary policy on a sample, and negative, indicating the efficiency of that policy. However, the speed of adjustment of individual economies is heterogeneous, and in the case of Greece and Ireland, insignificant. The heterogeneous or insignificant response of Eurozone member states, especially related to core-periphery asymmetry, refers to the vulnerability and structural weakness of the Eurozone economies, and the need for deeper integration.

Suggested Citation

  • Jovica Pejčić & Olgica Glavaški & Marina Beljić, 2024. "Driving Forces of the Consumer Price Index During the Crises in the Eurozone: Heterogeneous Panel Approach," Economies, MDPI, vol. 12(11), pages 1-19, October.
    • Handle: RePEc:gam:jecomi:v:12:y:2024:i:11:p:292-:d:1508648
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    References listed on IDEAS

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