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Commodity Price Volatility, Cyclical Fluctuations, and Convergence; What is Ahead for Inflation in Emerging Europe?

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  • Edda Zoli

Abstract

This paper assesses the role of international commodity prices, cyclical fluctuations, and convergence in driving inflation in 18 European emerging economies. Country specific VARs and panel estimates indicate that international commodity price shocks have a significant impact on domestic inflation, but the inflation response is asymmetric for positive and negative shocks. Cyclical fluctuations explain a relative small share of inflation variability, and the inflation response is asymmetric during upturns and downturns. Price convergence is estimated to add nearly 3 percentage points to headline inflation, for the average country whose price level is about 50 percent relative to the EU-15 average.

Suggested Citation

  • Edda Zoli, 2009. "Commodity Price Volatility, Cyclical Fluctuations, and Convergence; What is Ahead for Inflation in Emerging Europe?," IMF Working Papers 09/41, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:09/41
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    References listed on IDEAS

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    1. Lein, Sarah M. & León-Ledesma, Miguel A. & Nerlich, Carolin, 2008. "How is real convergence driving nominal convergence in the new EU Member States?," Journal of International Money and Finance, Elsevier, vol. 27(2), pages 227-248, March.
    2. Balázs Egert, 2007. "Real Convergence, Price Level Convergence and Inflation Differentials in Europe," CESifo Working Paper Series 2127, CESifo Group Munich.
    3. Pesaran, M. Hashem & Smith, Ron, 1995. "Estimating long-run relationships from dynamic heterogeneous panels," Journal of Econometrics, Elsevier, vol. 68(1), pages 79-113, July.
    4. Céline Allard, 2007. "Inflation in Poland; How Much Can Globalization Explain?," IMF Working Papers 07/41, International Monetary Fund.
    5. Paul van den Noord & Christophe André, 2007. "Why has Core Inflation Remained so Muted in the Face of the Oil Shock?," OECD Economics Department Working Papers 551, OECD Publishing.
    6. Hammermann, Felix & Flanagan, Mark, 2007. "What Explains Persistent Inflation Differentials Across Transition Economies?," Kiel Working Papers 1373, Kiel Institute for the World Economy (IfW).
    7. Mark J Flanagan & Felix Hammermann, 2007. "What Explains Persistent Inflation Differentials Across Transition Economies?," IMF Working Papers 07/189, International Monetary Fund.
    8. Balázs Égert, 2007. "Real Convergence, Price Level Convergence and Inflation in Europe," Working Papers 267, Bruegel.
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    Cited by:

    1. Luca ONORANTE & Gianluigi FERRUCCI & Rebeca JIMÉNEZ-RODRÍGUEZ, "undated". "Food Price Pass-Through in the Euro Area: the Role of Asymmetries and Non-Linearities," EcoMod2010 259600125, EcoMod.
    2. Choi, Sangyup & Furceri, Davide & Loungani, Prakash & Mishra, Saurabh & Poplawski-Ribeiro, Marcos, 2018. "Oil prices and inflation dynamics: Evidence from advanced and developing economies," Journal of International Money and Finance, Elsevier, vol. 82(C), pages 71-96.
    3. Moncarz, Pedro & Barone, Sergio & Calfat, Germán & Descalzi, Ricardo, 2014. "Poverty impacts of changes in the price of agricultural commodities: recent evidence for Argentina," IOB Working Papers 2014.09, Universiteit Antwerpen, Institute of Development Policy (IOB).
    4. Karsten Staehr, 2010. "Income convergence and inflation in Central and Eastern Europe : does the sun always rise in the East," Bank of Estonia Working Papers wp2010-04, Bank of Estonia, revised 22 Mar 2010.

    More about this item

    Keywords

    Cross country analysis; Commodity prices; Economic models; Emerging markets; Inflation; Time series; Price Convergence; price inflation; price level; inflation response;

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