Inflation Differentials in New EU Member States: Empirical Evidence

Roman Horvath and Kamila Koprnická ()
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Kamila Koprnická: Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic, http://ies.fsv.cuni.cz/

Czech Journal of Economics and Finance (Finance a uver), 2008, vol. 58, issue 07-08, 318-328

Abstract: In this paper, the authors examine the determinants of inflation differentials in a panel of the new European Union member states vis-a-vis the euro area in 1997–2007. Their main results are as follows. Exchange rate appreciation and a higher price level in the new EU members is associated with a narrower inflation differential vis-a-vis the euro area, while a fiscal deficit and a positive output gap seem to contribute to a higher inflation differential. Nevertheless, the effect of price convergence on inflation differentials is found to be dominant in these countries, suggesting that a country with a price level 20 % below the euro area average is likely to exhibit inflation nearly one percentage point above that in the euro area. Overall, the authors´ results indicate that real convergence factors rather than cyclical variation are more important for inflation developments in the new EU members as compared to the euro area.

Keywords: inflation differentials; price convergence; exchange rate; new EU members; panel data (search for similar items in EconPapers)
JEL-codes: E31 F41 (search for similar items in EconPapers)
Date: 2008
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:fau:fauart:v:58:y:2008:i:7-8:p:318-328

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