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Driving Forces of Inflation in New EU Countries (in English)

Emil Stavrev ()

Czech Journal of Economics and Finance (Finance a uver), 2006, vol. 56, issue 5-6, 246-257

Abstract: Driving forces of inflation in the eight new EU member states from Central and Eastern Europe are analyzed using the generalized dynamic-factor model (GDFM) developed by Forni et al. the impact of various macroeconomic variables on inflation is estimated by regressing the GDFM idiosyncratic component on these variables; the importance of second-round and indirect effects from energy shocks is assessed using a bivariate VAR. The author´s results suggest that, first, a significant part of inflation in the new members is driven by common factors, and, second, common component inflation is a better estimator of underlying inflation than a core inflation measure (i.e., headline inflation, excluding energy, food, alcohol, and tobacco).

Keywords: generalized dynamic-factor model; idiosyncratic components; inflation (search for similar items in EconPapers)
JEL-codes: C13 C33 E31 (search for similar items in EconPapers)
Date: 2006
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Handle: RePEc:fau:fauart:v:56:y:2006:i:5-6:p:246-257