Inflation Persistence: Is It Similar in the New EU Member States and the Euro Area Members?

Michal Franta, Branislav Saxa and Katerina Smidkova

No 2008/25, Working Papers IES from Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies

Abstract: Inflation persistence has been put forward as one of the potential reasons of divergence among euro area members. It has also been proposed that the new EU Member States (NMS) may struggle with even higher persistence due to convergence factors. We argue that persistence may not be as different between the two country groups as one might expect. However, this empirical result can only be obtained if the adequate estimation methods, reflecting the scope of the convergence process the NMS went through, are applied. We emphasize that a time-varying mean models suggest similar or lower inflation persistence for the NMS compared to euro area countries while more traditional parametric statistical measures assuming a constant mean deliver substantially higher persistence estimates for the NMS than for the euro area countries. This difference is due to frequent breaks in inflation time series in the NMS. Structural persistence measures show that backward-looking behavior may be a more important component in explaining inflation dynamics in the NMS than in the euro area countries.

Keywords: inflation persistence; new hybrid Phillips curve; new member states; time-varying mean (search for similar items in EconPapers)
JEL-codes: C11 C22 C32 E31 (search for similar items in EconPapers)
Pages: 35pages
Date: 2008-10, Revised 2008-10
New Economics Papers: this item is included in nep-cba, nep-ecm, nep-eec, nep-mac, nep-mon and nep-tra
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://ies.fsv.cuni.cz/default/file/download/id/9070 (application/pdf)
Our link check indicates that this URL is bad, the error code is: 404 Not Found (http://ies.fsv.cuni.cz/default/file/download/id/9070 [301 Moved Permanently]--> https://ies.fsv.cuni.cz/default/file/download/id/9070)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fau:wpaper:wp2008_25

Access Statistics for this paper

More papers in Working Papers IES from Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies Contact information at EDIRC.
Bibliographic data for series maintained by Natalie Svarcova ().