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What determines inflation?

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  • Martina Alexová

Abstract

This paper focuses on the determinants of inflation for new European Union members during the period from 1996 to 2011. We utilise a structural vector error correction model to estimate mark-up or long-run output gap relationships and the analyse dynamic properties of the models. We find that Slovakia, the Czech Republic, Hungary, Poland and Bulgaria can be characterised by cost-push inflation from a long-run perspective whereas demand-side factors are more characteristic for Slovenia, Estonia, Latvia, Lithuania and Romania. Inflation dynamics in short-run inflation were influenced by inertia, labour costs, foreign market competitiveness, production as well as some exogenous shocks. We also investigate the direct relationship between inflation and government deficit; however, there seems to be no interdependency between these variables in the long run.

Suggested Citation

  • Martina Alexová, 2012. "What determines inflation?," International Journal of Monetary Economics and Finance, Inderscience Enterprises Ltd, vol. 5(4), pages 345-369.
    • Handle: RePEc:ids:ijmefi:v:5:y:2012:i:4:p:345-369
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    Cited by:

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    2. Dahem, Ahlem, 2015. "Short term Bayesian inflation forecasting for Tunisia," MPRA Paper 66702, University Library of Munich, Germany.
    3. Oatlhotse Madito & Nicholas M. Odhiambo, 2018. "The Main Determinants Of Inflation In South Africa: An Empirical Investigation," Organizations and Markets in Emerging Economies, Faculty of Economics, Vilnius University, vol. 9(2).

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    More about this item

    Keywords

    inflation determinants; long-run structural VARs; subset VEC model; mark-up; output gap; deficit; commodity prices; new EU members; European Union; Slovakia; Czech Republic; Hungary; Poland; Bulgaria; cost-push inflation; demand side; Slovenia; Estonia; Latvia; Lithuania; Romania; inflation dynamics; inertia; labour costs; foreign market competitiveness; production; some exogenous shocks; government deficit.;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

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