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Volume 56, Issue 5 -6

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Driving Forces of Inflation in New EU Countries (in English)

Stavrev, Emil

Year: 2006   Volume: 56   Issue: 5 -6   Pages: 246-257

Abstract: Driving forces of inflation in the eight new EU member states from Central and Eastern Europe are analyzed using the generalized dynamic-factor model (GDFM) developed by Forni et al. the impact of various macroeconomic variables on inflation is estimated by regressing the GDFM idiosyncratic component on these variables; the importance of second-round and indirect effects from energy shocks is assessed using a bivariate VAR. The authorĀ“s results suggest that, first, a significant part of inflation in the new members is driven by common factors, and, second, common component inflation is a better estimator of underlying inflation than a core inflation measure (i.e., headline inflation, excluding energy, food, alcohol, and tobacco).

JEL classification: C13, C33, E31

Keywords: generalized dynamic-factor model; idiosyncratic components; inflation

RePEc: http://ideas.repec.org/a/fau/fauart/v56y2006i5-6p246-257.html

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