The role of external and country specific factors in Hungarian inflation developments

Balázs Krusper ()

No 2012/5, MNB Working Papers from Magyar Nemzeti Bank (Central Bank of Hungary)

Abstract: Recent literature suggests that the co-movement of inflation is rather strong across countries. We use a factor model to asses this co-movement within the EU, while we differentiate between common (EU) and regional (CEE) effects. We find that price dynamics in Western European countries share a common pattern, while CEE countries can be divided into subgroups according to their inflation history. Results indicate that the monetary policy regime is a very important source of the difference among CEE countries. This method also allows us to examine how external and country-specific components contributed to the Hungarian inflation. We find that Hungary, similar to other countries in the region, experienced a disinflation period before the EU accession. However, country specific components (e.g. VAT changes or monetary policy) also played an important role.

Keywords: inflation dynamics; factor model (search for similar items in EconPapers)
JEL-codes: C33 E31 E42 E58 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2012
New Economics Papers: this item is included in nep-mon and nep-tra
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Citations: View citations in EconPapers (6)

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