Inflation differentials in EU new member states: An empirical evidence

Arbeitspapier

In this paper, we examine the determinants of inflation differentials in a panel of the new European Union member states vis-à-vis the euro area in 1997-2007. Our main results are as follows. Exchange rate appreciation and higher price level in the new EU members is associated with narrower inflation differential vis-à-vis the euro area, while fiscal deficit and positive output gap seem to contribute to higher inflation differential. Nevertheless, the effect of price convergence on inflation differentials is found to be dominating in these countries suggesting that a country with price level 20% below the euro area average is likely to exhibit inflation nearly one percentage point above the euro area. Overall, our results indicate that real convergence factors rather than cyclical variation are more important for inflation developments in the new EU members, as compared to the euro area.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: IES Working Paper ; No. 24/2008

Classification and Topics

• Classification: Wirtschaft ; Price Level; Inflation; Deflation ; Open Economy Macroeconomics
• Subject: inflation differentials ; price convergence ; exchange rate ; New EU members ; panel data ; Inflation ; Vergleich ; EU-Staaten (Osteuropa)

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Horváth, Roman ; Koprnická, Kamila
• Event: Veröffentlichung
• (who): Charles University in Prague, Institute of Economic Studies (IES)
• (where): Prague
• (when): 2008

Further information

• Handle: http://hdl.handle.net/10419/83351
• Last update: 10.03.2025, 11:43 AM CET