How Do Estimates of Inflation Persistence in Malta Compare with Other EU Countries?

Brian Micallef and Reuben Ellul Dimech

International Journal of Economics and Finance, 2020, vol. 12, issue 7, 31

Abstract: After the European sovereign debt crisis in 2012, inflation has been unexpectedly low across most of the economies making up the euro area, as well as the Monetary Union aggregate, with economists referring to this phenomenon as the “missing inflation” puzzle. As the smallest and one of the most open economies in the euro area, Malta has also registered a period of low inflation post-2012, despite registering an average GDP growth rate of 6.9% per annum over the period 2013-2019. This paper estimates the extent of inflation persistence of Malta and a number of EU economies for both the pre- and post-2012 period. Measures of persistence are computed as the sum of autoregressive coefficients derived from univariate regressions on both aggregated and disaggregated inflation series. Estimates of persistence in Malta have increased when the sample covers the post-2012 period. In terms of the main sub-components, energy inflation has a substantially higher persistence compared to the pre-2012 period, reflecting both external and country-specific factors. Most other EU countries also reported an increase in persistence when including the post-2012 period in the sample although the estimates for Malta, both at the aggregate and disaggregated indices, remain less persistent.

Date: 2020
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