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Inflation persistence in central and eastern European countries


  • Zsolt Darvas
  • Balázs Varga


This article studies inflation persistence with time-varying coefficient autoregressions for 12 central European countries in comparison with the United States and the euro area. We find that inflation persistence tends to be higher in times of high inflation. Since the oil price shocks, inflation persistence has declined both in the United States and the euro area. In most central and eastern European countries, for which our study covers 1993--2012, inflation persistence has also declined, with the main exceptions of the Czech Republic, Slovakia and Slovenia, where persistence seems to be rather stable. Our findings have implications for the conduct of monetary policy and for a possible membership in the euro area. Among the two time-varying coefficient methods we use, our results favour the flexible least squares smoother over the Kalman smoother. We also conclude that the OLS estimate of an autoregression is likely upward biased relative to the time-average of time-varying parameters, when the parameters change.

Suggested Citation

  • Zsolt Darvas & Balázs Varga, 2014. "Inflation persistence in central and eastern European countries," Applied Economics, Taylor & Francis Journals, vol. 46(13), pages 1437-1448, May.
  • Handle: RePEc:taf:applec:v:46:y:2014:i:13:p:1437-1448
    DOI: 10.1080/00036846.2013.875113

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    References listed on IDEAS

    1. Filippo Altissimo & Michael Ehrmann & Frank Smets, 2006. "Inflation persistence and price-setting behaviour in the euro area – a summary of the IPN evidence," Occasional Paper Series 46, European Central Bank.
    2. Franta, Michal & Saxa, Branislav & Šmídková, Kateřina, 2007. "Inflation persistence: euro area and new EU Member States," Working Paper Series 810, European Central Bank.
    3. Pivetta, Frederic & Reis, Ricardo, 2007. "The persistence of inflation in the United States," Journal of Economic Dynamics and Control, Elsevier, vol. 31(4), pages 1326-1358, April.
    4. Cuestas, Juan Carlos & Harrison, Barry, 2010. "Inflation persistence and nonlinearities in Central and Eastern European countries," Economics Letters, Elsevier, vol. 106(2), pages 81-83, February.
    5. Kalaba, Robert & Tesfatsion, Leigh, 1988. "The flexible least squares approach to time-varying linear regression," Journal of Economic Dynamics and Control, Elsevier, vol. 12(1), pages 43-48, March.
    6. Rob Ackrill and Simeon Coleman, 2012. "Inflation dynamics in central and eastern European countries," Working Papers 2012/01, Nottingham Trent University, Nottingham Business School, Economics Division.
    7. Busetti, Fabio & Taylor, A. M. Robert, 2004. "Tests of stationarity against a change in persistence," Journal of Econometrics, Elsevier, vol. 123(1), pages 33-66, November.
    8. Maarten Dossche & Gerdie Everaert, 2005. "Measuring Inflation Persistence: A Structural Time Series Approach," Computing in Economics and Finance 2005 459, Society for Computational Economics.
    9. Kalaba, Robert E. & Tesfatsion, Leigh S., 1990. "Flexible Least Squares for Approximately Linear Systems," Staff General Research Papers Archive 11190, Iowa State University, Department of Economics.
    10. Harvey, David I. & Leybourne, Stephen J. & Taylor, A.M. Robert, 2006. "Modified tests for a change in persistence," Journal of Econometrics, Elsevier, vol. 134(2), pages 441-469, October.
    11. Kim, Jae-Young & Belaire-Franch, Jorge & Amador, Rosa Badillo, 2002. "Corrigendum to "Detection of change in persistence of a linear time series" [J. Econom. 95 (2000) 97-116]," Journal of Econometrics, Elsevier, vol. 109(2), pages 389-392, August.
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    Cited by:

    1. Jiranyakul, Komain, 2015. "Exchange Rate Regimes and Persistence of Inflation in Thailand," MPRA Paper 66203, University Library of Munich, Germany.
    2. Evzen Kocenda & Balazs Varga, 2016. "The impact of monetary strategies on inflation persistence," KIER Working Papers 938, Kyoto University, Institute of Economic Research.
    3. Uliha, Gábor, 2016. "Az olajár gyengülő makrogazdasági hatásai. Két versengő elmélet szintézise
      [Weakening macroeconomic effects of the oil price. A synthesis of two competing theories]
      ," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(7), pages 787-818.

    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


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