Inflation Contagion Effects in the Baltic Countries: A Time-varying Coefficients VAR with Stochastic Volatility Analysis

Bogdan Dima (), Ştefana Maria Dima () and Flavia Barna ()
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Bogdan Dima: West University of Timisoara, Faculty of Economics and Business Administration, East-European Center for Research in Economics and Business (ECREB), Timisoara, Romania;
Ştefana Maria Dima: West University of Timisoara, Faculty of Economics and Business Administration, East-European Center for Research in Economics and Business (ECREB), Timisoara, Romania
Flavia Barna: West University of Timisoara, Faculty of Economics and Business Administration, East-European Center for Research in Economics and Business (ECREB), Timisoara, Romania.

Journal for Economic Forecasting, 2019, issue 1, 72-87

Abstract: Despite the recent progress in ensuring price stability, inflation persistence still is a key policy issue for the Central and Eastern European countries. Among various structural and functional determinants of potential inflation tensions, the increase in the degree of openness and the regional interdependences are playing an important role. The case of the Baltic countries can provide some interesting empirical evidence for the transmission of exogenous inflation shocks in the case of small open economies and can highlight the transmission channels which are associated with the existence of ‘dual inflation’. We propose a two-fold approach to this topic: (i) we advance a simple model aiming to capture some mechanisms which might produce inflation contagion effects; (ii) we test for the existence of such effects between the Baltic countries for January 1996 and April 2015.

Keywords: Baltic countries; inflation; Time-Varying Coefficients VAR; stochastic volatility (search for similar items in EconPapers)
JEL-codes: C22 E31 (search for similar items in EconPapers)
Date: 2019
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