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Causality between Actual and Expected Inflation in Central and Eastern Europe: Evidence Using a Heterogeneous Panel Analysis

Yingying Xu, Zhixin Liu, Chi-Wei Su and Jaime Ortiz

Eastern European Economics, 2021, vol. 59, issue 2, 148-170

Abstract: This study applies a panel Granger non-causality test to explore the causal relationships between actual and expected inflation in Czechia, Hungary, Latvia, Lithuania, Poland, and Romania. The empirical results for these Central and Eastern European (CEE) countries show significantly positive causalities running from actual to expected inflation. However, the effect of actual inflation on inflation expectation weakens in Hungary and Romania following a financial crisis, and causality is no longer significant for Czechia, Latvia, Lithuania, and Poland. Domestic policies remain important for the management of actual and expected inflation, regardless of the monetary policy regime adopted.

Date: 2021
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DOI: 10.1080/00128775.2020.1863821

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Handle: RePEc:mes:eaeuec:v:59:y:2021:i:2:p:148-170