Inflation dynamics and dual inflation in accession countries: a 'New Keynesian' perspective

Diego Rodriguez-Palenzuela, Christian Thimann and Peter Backé

No 132, Working Paper Series from European Central Bank

Abstract: This paper examines inflation dynamics in the current EU-accession countries in central and eastern Europe, focusing particularly on the determinants of 'dual inflation', that is, diverging inflation rates for tradable and non-tradable goods. The paper draws on the recently published data for the Harmonized Index of Consumer Prices (HICP) of the Accession countries and, indeed, finds evidence of ' dual inflation' in these economies. To test empirically for underlying determinants, the paper borrows from the recently developed New Phillips curve literature. Overall, domestic factors have systematically a stronger impact upon non-tradable goods inflation whereas international factors have a stronger impact over tradable goods. Furthermore, the results point to the possibly very different effects of exchange rate regimes over tradable and non-tradable goods inflation. On the whole, the findings suggest that the Balassa-Samuelson effect is not a prominent factor behind the current 'experience' of dual inflation in these countries. JEL Classification: E31, E58, F41, P24

Keywords: Balassa-Samuelson effect; Central and Eastern European countries; dual inflation; exchange rate regimes; new Keynesian Phillips curve (search for similar items in EconPapers)
Date: 2002-03
Note: 54288
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Citations: View citations in EconPapers (40)

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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:2002132

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