Inflation in the New EU Countries from Central and Eastern Europe: Theories and panel data estimations
Karsten Staehr ()
No wp2010-06, Bank of Estonia Working Papers from Bank of Estonia
This paper seeks to identify factors driving consumer price inflation in the new EU member countries from Central and Eastern Europe. Different theories are discussed, including some of particular importance to economies experiencing high economic growth and rapid structural change. The explanatory power of the theories is tested using panel data estimations based on annual data from 1997 to 2007. Convergence- related factors, including the Balassa-Samuelson and the Bhagwati capital-deepening effects, are important drivers of inflation. Import inflation and, by implication, exchange rate developments have an important impact, while the exchange rate regime is unimportant. Higher government debt and larger revenues are associated with higher inflation. The cyclical position as measured by unemployment, employment changes or the current account balance is found to affect inflation. Food price shocks have large but short-lived effects, while energy price shocks have longer-lasting effects on the inflation rate. Multicollinearity across the explanatory variables makes it difficult to identify the effect of each individual factor
Keywords: inflation; inflation theories; real and nominal convergence; inflation determinants (search for similar items in EconPapers)
JEL-codes: E31 E42 E63 P24 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-eec, nep-mac, nep-mon and nep-tra
Date: 2010-05-26, Revised 2010-05-26
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5) Track citations by RSS feed
Downloads: (external link)
http://www.eestipank.ee/sites/eestipank.ee/files/p ... ers/2010/_wp_610.pdf (application/pdf)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:eea:boewps:wp2010-06
Ordering information: This working paper can be ordered from
Estonia bld. 13, 15095 Tallinn, ESTONIA
Access Statistics for this paper
More papers in Bank of Estonia Working Papers from Bank of Estonia Estonia bld. 13, 15095 Tallinn, ESTONIA. Contact information at EDIRC.
Bibliographic data for series maintained by Peeter Luikmel ().