Estimation of the impact of global and domestic factors on inflation in Serbia

Ana Ivkovic, Mirjana Miletic, Savo Jakovljevic, Ana Ivkovic, Mirjana Miletic and Savo Jakovljevic
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Ana Ivkovic: National Bank of Serbia
Mirjana Miletic: National Bank of Serbia
Savo Jakovljevic: National Bank of Serbia

Working Papers Bulletin from National Bank of Serbia

Abstract: To test the extent to which global and domestic factors have impacted the inflation dynamics in Serbia in the past fifteen years, we have applied three approaches in this paper: 1. the principal component analysis, which allowed us to separate the contribution of global and domestic factors to y-o-y inflation; 2. the estimate of the ARDL model to examine the impact of concrete domestic and global factors on the quarterly inflation rate; 3. the estimate of the SVAR model, based on which we followed the inflation’s response to different shocks from the domestic and international environment. The econometric analysis of the impact of global and domestic factors on inflation in Serbia shows the statistical significance of coefficients for the exchange rate and inflation expectations, indicating the importance of the relative stability of the exchange rate and anchored inflation expectations for domestic inflation. In the period observed, inflation was influenced both by global shocks (rising global primary commodity prices) and domestic factors (dinar’s depreciation against the euro). Their influence is different in subperiods. Since the start of 2017, the exchange rate diminished the variability of inflation, while inflation’s rise since 2021 is led primarily by global factors.

Keywords: inflation; global factors; domestic factors; principal component analysis; structural VAR (search for similar items in EconPapers)
JEL-codes: C10 C5 E31 E37 E52 (search for similar items in EconPapers)
Pages: 28 pages
Date: 2022-03
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