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Inflation Contagion Effects in the Baltic Countries: A Time-varying Coefficients VAR with Stochastic Volatility Analysis

Author

Listed:
  • Bogdan DIMA

    () (West University of Timisoara, Faculty of Economics and Business Administration, East-European Center for Research in Economics and Business (ECREB), Timisoara, Romania;)

  • Ştefana Maria DIMA

    () (West University of Timisoara, Faculty of Economics and Business Administration, East-European Center for Research in Economics and Business (ECREB), Timisoara, Romania)

  • Flavia BARNA

    () (West University of Timisoara, Faculty of Economics and Business Administration, East-European Center for Research in Economics and Business (ECREB), Timisoara, Romania.)

Abstract

Despite the recent progress in ensuring price stability, inflation persistence still is a key policy issue for the Central and Eastern European countries. Among various structural and functional determinants of potential inflation tensions, the increase in the degree of openness and the regional interdependences are playing an important role. The case of the Baltic countries can provide some interesting empirical evidence for the transmission of exogenous inflation shocks in the case of small open economies and can highlight the transmission channels which are associated with the existence of ‘dual inflation’. We propose a two-fold approach to this topic: (i) we advance a simple model aiming to capture some mechanisms which might produce inflation contagion effects; (ii) we test for the existence of such effects between the Baltic countries for January 1996 and April 2015.

Suggested Citation

  • Bogdan DIMA & Ştefana Maria DIMA & Flavia BARNA, 2019. "Inflation Contagion Effects in the Baltic Countries: A Time-varying Coefficients VAR with Stochastic Volatility Analysis," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(1), pages 72-87, March.
  • Handle: RePEc:rjr:romjef:v::y:2019:i:1:p:72-87
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Baltic countries; inflation; Time-Varying Coefficients VAR; stochastic volatility;
    All these keywords.

    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

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