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Sources of Regional Inflation in Poland

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  • Pawel Gajewski

    (Department of Economics, Faculty of Economics and Sociology, University of Lodz, Lodz, Poland)

Abstract

This paper aims at shedding some light on the sources of regional inflation in Poland. More specifically, it investigates the role of external, national and idiosyncratic shocks. In a two-step procedure, we estimate orthogonal components corresponding to each of these shocks, while performing variance decomposition to assess their relative importance in explaining inflation in individual regions. In the course of the paper we develop two ad hoc hypotheses. First, that regional inflation rates are largely driven by national shocks, while the impact of external shocks is smaller. Second, that shocks to inflation which are asymmetric between Poland and its external environment contribute to the cross-regional divergence of inflation rates in Poland. Empirical evidence supports both of these assertions. Indeed, we show that the importance of idiosyncratic shocks in the Polish regions is strikingly low. However, regional differences in inflation co-movements can be attributed to the diverse importance of global and national shocks. In auxiliary regressions we confirm that shocks which strongly and asymmetrically affect inflation in Poland and the EU, also contribute to crossregional inflation divergence in Poland. To the best of our knowledge this is the first attempt to investigate sources of regional inflation in a CEE country.

Suggested Citation

  • Pawel Gajewski, 2016. "Sources of Regional Inflation in Poland," Lodz Economics Working Papers 5/2016, University of Lodz, Faculty of Economics and Sociology.
  • Handle: RePEc:ann:wpaper:5/2016
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    Cited by:

    1. Gajewski Pawe³, 2018. "Demand and Supply Shock Symmetry across Polish Voievodships," Lodz Economics Working Papers 5/2018, University of Lodz, Faculty of Economics and Sociology.
    2. Hakan Yilmazkuday, 2013. "Inflation targeting, flexible exchange rates and inflation convergence," Applied Economics, Taylor & Francis Journals, vol. 45(5), pages 593-603, February.

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    More about this item

    Keywords

    regional inflation; principal components; parallel analysis; regional economic dynamics;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes

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