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Origins of Post-COVID-19 Inflation in Central European Countries

Author

Listed:
  • Tomas Sestorad

    (Institute of Economic Studies of the Faculty of Social Sciences, Charles University & The Czech National Bank, Monetary Department, Prague, Czech Republic)

  • Natalie Dvorakova

    (Institute of Economic Studies of the Faculty of Social Sciences, Charles University; Prague, Czech Republic)

Abstract

This paper examines the drivers of the post-pandemic surge in inflation in four small open economies: Czechia, Hungary, Poland, and Slovakia. For this purpose, a Bayesian structural vector autoregressive model with sign-zero restrictions and block exogeneity is employed. The results show that both foreign demand and foreign supply shocks have contributed significantly to inflation in the post-2020 period across countries, alongside notable contributions from domestic factors explaining differences among economies. Specifically, supply-side shocks are identified as the primary domestic factor across all countries, whereas domestic demand shocks were much less influential. Exchange rate shocks were pronounced in Hungary only, while monetary policy shocks have had a minimal impact on inflation since 2022 in all the countries considered. Additionally, we provide decompositions of core inflation, highlighting the predominance of domestic factors.

Suggested Citation

  • Tomas Sestorad & Natalie Dvorakova, 2024. "Origins of Post-COVID-19 Inflation in Central European Countries," Working Papers IES 2024/36, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised Oct 2024.
    • Handle: RePEc:fau:wpaper:wp2024_36
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    File URL: https://ies.fsv.cuni.cz/en/origins-post-covid-19-inflation-central-european-countries
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    More about this item

    Keywords

    Bayesian VAR; extraordinary events; inflation; sign-zero restrictions; small open economies;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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