Convergence-driven inflation and the channels of its absorption

Karolina Konopczak and Aleksander Welfe

Journal of Policy Modeling, 2017, vol. 39, issue 6, 1019-1034

Abstract: Convergence-driven inflation is an important issue from the perspective of catching-up economies, especially those within a heterogeneous monetary union. This study contributes to the existing literature by analysing the role of the labour and product markets in mitigating inflationary pressure stemming from the catching-up process. It is demonstrated that disregarding the developments of sectoral wages and mark-ups severely distorts the estimates of the convergence-driven inflation. The empirical results obtained for the Czech Republic, Hungary, Poland and Slovakia provide a basis for assessing the risk of common monetary policy in the euro area being inadequate for their economies.

Keywords: Real convergence; Inflationary processes; Monetary integration; Panel cointegration; Balassa–Samuelson effect (search for similar items in EconPapers)
JEL-codes: C23 E31 F45 (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jpolmo:v:39:y:2017:i:6:p:1019-1034

DOI: 10.1016/j.jpolmod.2017.02.001

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