Naslov
Inflation in New EU Member States: A Domestically or Externally Driven Phenomenon?

Autori
Globan, Tomislav ; Arčabić, Vladimir ; Sorić, Petar

Izvornik
EFZG Working Paper Series/EFZG Serija članaka u nastajanju

Vrsta, podvrsta
Ostale vrste radova, rukopis

Godina
2014

Ključne riječi
domestic and external inflation determinants; historical decomposition; inflation; new EU member states; consumer surveys

Sažetak
This paper analyzes the domestic and external inflation determinants for eight non-eurozone new EU member states (NMS). The empirical literature has been rather silent on the comparison of the relative importance of domestic vs. foreign inflation determinants. This paper aims to fill this gap and add to the literature by several methodological and empirical contributions. Empirical analysis is based on the structural vector autoregression (SVAR) model. It enables the authors to decompose inflation into its domestic and foreign component via historical decomposition analysis. Results indicate that foreign shocks are a major factor in explaining inflation dynamics in the medium run, while the short run inflation dynamics is mainly influenced by domestic shocks. Moreover, the importance of the foreign inflation component has had a rising trend in the pre-crisis period in all NMS, while the start of that trend mostly coincided with their accession to the EU. The global financial crisis seems to have decreased the importance of the foreign inflation component, although the results vary across countries. Since foreign shocks proved to be a very important determinant of inflation in NMS, the main policy implication of this study is the need to augment the classical Taylor rule with foreign factors in case of small open economies.

Izvorni jezik
Engleski

Znanstvena područja
Ekonomija

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