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Determinants of Inflation in Europe – A Dynamic Panel Analysis

Author

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  • Čaklovica Lejla

    (Senior Officer for Government Finance Statistics, Office for Government Finance Statistics and Financial Accounts, Department for Statistics and Publication, Central Bank of Bosnia and Herzegovina)

  • Efendic Adnan S.

    (University of Sarajevo; Affiliate Fellow at CERGE-EI)

Abstract

This article offers an empirical analysis of determinants of inflation in 28 European economies that belonged to the transition group of countries in the end of the last century. We rely on dynamic panel methodology and find that economic and structural variables, including economic openness, unemployment, real wages, institutional effects, as well as external factors, such as prices of food and oil, determine the short-run inflationary dynamics in these countries. The obtained results also indicate that inflation rate is autoregressive in the observed period (2005-2015), confirming that contemporaneous inflation rate is determined by the entire history of these determinants. Our further investigation reveals long- term effects of the majority of these variables on price dynamics. Interestingly, distinction between the current EU and transition countries in the model does not lead to different conclusions.

Suggested Citation

  • Čaklovica Lejla & Efendic Adnan S., 2020. "Determinants of Inflation in Europe – A Dynamic Panel Analysis," Financial Internet Quarterly (formerly e-Finanse), Sciendo, vol. 16(3), pages 51-79, September.
  • Handle: RePEc:vrs:finiqu:v:16:y:2020:i:3:p:51-79:n:4
    DOI: 10.2478/fiqf-2020-0018
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    More about this item

    Keywords

    determinants of inflation; transition countries; dynamic panel model;
    All these keywords.

    JEL classification:

    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General

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