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Inflation Dynamics in the New EU Member States: How Relevant Are External Factors?

  • Alexander Mihailov
  • Fabio Rumler
  • Johann Scharler

In this paper we evaluate the relative influence of external versus domestic inflation drivers in the 12 new European Union (EU) member countries. Our empirical analysis is based on the New Keynesian Phillips Curve (NKPC) derived in Galí and Monacelli (2005) for small open economies (SOE). Employing the Generalized Method of Moments (GMM), we find that the SOE NKPC is well supported in the new EU member states. We also find that the inflation process is dominated by domestic variables in the larger countries of our sample, whereas external variables are mostly relevant in the smaller countries.

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File URL: http://www.econ.jku.at/papers/2009/wp0913.pdf
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Paper provided by Department of Economics, Johannes Kepler University Linz, Austria in its series Economics working papers with number 2009-13.

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Length: 19 pages
Date of creation: Oct 2009
Date of revision:
Handle: RePEc:jku:econwp:2009_13
Contact details of provider: Fax: +43 732-2468-8238
Web page: http://www.econ.jku.at/
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  1. Alexander Mihailov & Fabio Rumler & Johann Scharler, 2011. "The Small Open-Economy New Keynesian Phillips Curve: Empirical Evidence and Implied Inflation Dynamics," Open Economies Review, Springer, vol. 22(2), pages 317-337, April.
  2. Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, vol. 12(3), pages 383-398, September.
  3. Forni, Mario & Hallin, Marc & Lippi, Marco & Reichlin, Lucrezia, 1999. "The Generalized Dynamic Factor Model: Identification and Estimation," CEPR Discussion Papers 2338, C.E.P.R. Discussion Papers.
  4. Emil Stavrev, 2009. "Forces Driving Inflation in the New EU10 Members," IMF Working Papers 09/51, International Monetary Fund.
  5. Hondroyiannis, George & Swamy, P.A.V.B. & Tavlas, George S., 2008. "Inflation dynamics in the euro area and in new EU members: Implications for monetary policy," Economic Modelling, Elsevier, vol. 25(6), pages 1116-1127, November.
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