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Inflation in New EU Member States: A Domestically or Externally Driven Phenomenon?

Author

Listed:
  • Tomislav Globan
  • Vladimir Arčabić
  • Petar Sorić

Abstract

This article empirically analyzes the domestic and external inflation determinants for eight non-eurozone new EU member states (NMS), using a structural vector autoregression model. Results indicate that foreign shocks are a major factor in explaining inflation dynamics in the medium run, while the short-run inflation dynamics are mainly influenced by domestic shocks. Moreover, the importance of the foreign inflation component has had a rising trend in the precrisis period in all NMS and mostly coincided with their accession to the EU. This trend ended with the onset of the global financial crisis. The study implicates the need to augment the classical Taylor rule with foreign factors in the case of small open economies.

Suggested Citation

  • Tomislav Globan & Vladimir Arčabić & Petar Sorić, 2016. "Inflation in New EU Member States: A Domestically or Externally Driven Phenomenon?," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 52(1), pages 154-168, January.
    • Handle: RePEc:mes:emfitr:v:52:y:2016:i:1:p:154-168
    DOI: 10.1080/1540496X.2014.998547
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    Cited by:

    1. Barišić, Patrik & Kovač, Tibor & Arčabić, Vladimir, 2023. "More than just supply and demand: Macroeconomic shock decomposition in Croatia during and after the transition period," Structural Change and Economic Dynamics, Elsevier, vol. 67(C), pages 420-438.
    2. Petar Soric & Enric Monte & Salvador Torra & Oscar Claveria, 2022. "“Density forecasts of inflation using Gaussian process regression models”," AQR Working Papers 202207, University of Barcelona, Regional Quantitative Analysis Group, revised Jul 2022.
    3. Szafranek, Karol & Szafrański, Grzegorz & Leszczyńska-Paczesna, Agnieszka, 2024. "Inflation returns. Revisiting the role of external and domestic shocks with Bayesian structural VAR," International Review of Economics & Finance, Elsevier, vol. 93(PA), pages 789-810.
    4. Igor Živko & Mile Bošnjak, 2017. "Time Series Modeling of Inflation and its Volatility in Croatia," Notitia - journal for economic, business and social issues, Notitia Ltd., vol. 1(3), pages 1-10, December.
    5. Josef C. Brada & Jan KubÃ­Ä ek & Ali M. Kutan & Vladimír Tomšík, 2015. "Inflation Targeting: Insights from Behavioral Economics," Eastern European Economics, Taylor & Francis Journals, vol. 53(5), pages 357-376, September.
    6. repec:prg:jnlpep:v:preprint:id:677:p:1-16 is not listed on IDEAS
    7. Yilmazkuday, Hakan, 2022. "Drivers of Turkish inflation," The Quarterly Review of Economics and Finance, Elsevier, vol. 84(C), pages 315-323.
    8. Goran Jovičić & Davor Kunovac, 2017. "What is Driving Inflation and GDP in a Small European Economy: The Case of Croatia," Working Papers 49, The Croatian National Bank, Croatia.
    9. Oguz Atuk & Mustafa Utku Özmen & Cagri Sarikaya, 2018. "A Disaggregated Analysis of the Impact of Output Gap on Inflation and Implications for Monetary Policy," Prague Economic Papers, Prague University of Economics and Business, vol. 2018(6), pages 668-683.
    10. Aleksandra Hałka & Jacek Kotłowski, 2017. "Global or Domestic? Which Shocks Drive Inflation in European Small Open Economies?," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 53(8), pages 1812-1835, August.
    11. Kim, Won Joong & Ko, Juyoung & Kwon, Won Soon & Piao, Chunyan, 2025. "Time-varying sources of fluctuations in global inflation," Economic Modelling, Elsevier, vol. 143(C).
    12. Karol Szafranek & Aleksandra Hałka, 2019. "Determinants of Low Inflation in an Emerging, Small Open Economy through the Lens of Aggregated and Disaggregated Approach," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 55(13), pages 3094-3111, October.
    13. repec:jaf:journl:v:14:y:2023:i:1:n:516 is not listed on IDEAS
    14. richelmy ETENDINO NKOMBE, 2023. "determinants of inflation in the CEMAC zone," Journal of Academic Finance, RED research unit, university of Gabes, Tunisia, vol. 14(1), pages 64-82, June.

    More about this item

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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