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Relative Inflation in the EU Accession Countries of Central and Eastern Europe

Author

Listed:
  • Hiranya Nath

    (Department of Economics, Sam Houston State University)

  • Kiril Tochkov

    (Department of Economics, Texas Christian University)

Abstract

Following their EU accession, the new member countries from Central and Eastern Europe (CEE) must achieve sustainable price stability as one of the pre-conditions for joining the Economic and Monetary Union (EMU) and adopting the euro. This paper examines the distribution dynamics of inflation rates in ten EU members from CEE relative to the EMU accession benchmark inflation over the period 1990-2009. In contrast to previous studies, we use nonparametric methods to test for convergence in inflation rates between CEE and the EMU benchmark as well as within the CEE sample. Over the entire sample period, we detect a general shift in the CEE inflation distribution towards the EMU benchmark along with intradistributional convergence. However, this process is not uniform. In the early years, it was equally likely for CEE inflation rates to move towards or away from the benchmark. The resulting multimodal distribution gave way to a unimodal distribution in the years leading up to the EU accession, accompanied by a marked shift towards the EMU benchmark. In more recent years, emergence of a bimodal distribution signaled the stratification of relative inflation in CEE into two convergence clubs, which has intensified since the start of the global economic crisis.

Suggested Citation

  • Hiranya Nath & Kiril Tochkov, 2011. "Relative Inflation in the EU Accession Countries of Central and Eastern Europe," Working Papers 201105, Texas Christian University, Department of Economics.
    • Handle: RePEc:tcu:wpaper:201105
    as

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    File URL: http://www.econ.tcu.edu/RePEc/tcu/wpaper/wp11-05.pdf
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    References listed on IDEAS

    as
    1. Becker, Bettina & Hall, Stephen G., 2009. "How far from the Euro Area? Measuring convergence of inflation rates in Eastern Europe," Economic Modelling, Elsevier, vol. 26(4), pages 788-798, July.
    2. repec:onb:oenbwp:y::i:61:b:1 is not listed on IDEAS
    3. Miriam Camarero & Vicente Esteve & Cecilio Tamarit, 2000. "Price convergence of peripheral European countries on the way to the EMU: A time series approach," Empirical Economics, Springer, vol. 25(1), pages 149-168.
    4. Peter Backé & Jarko Fidrmuc & Thomas Reininger & Franz Schardax, 2002. "Price Dynamics in Central and Eastern European EU Accession," Working Papers 61, Oesterreichische Nationalbank (Austrian Central Bank).
    5. Weber, Axel A. & Beck, Günter W., 2005. "Price stability, inflation convergence and diversity in EMU: Does one size fit all?," CFS Working Paper Series 2005/30, Center for Financial Studies (CFS).
    6. Brada, Josef C. & Kutan, Ali M. & Zhou, Su, 2005. "Real and monetary convergence between the European Union's core and recent member countries: A rolling cointegration approach," Journal of Banking & Finance, Elsevier, vol. 29(1), pages 249-270, January.
    7. Imed Drine & Christophe Rault, 2006. "Testing for inflation convergence between the Euro Zone and its CEE partners," Applied Economics Letters, Taylor & Francis Journals, vol. 13(4), pages 235-240.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Bogdan DIMA & Ştefana Maria DIMA & Flavia BARNA, 2019. "Inflation Contagion Effects in the Baltic Countries: A Time-varying Coefficients VAR with Stochastic Volatility Analysis," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(1), pages 72-87, March.
    2. Hiranya Nath & Kiril Tochkov, 2013. "Relative inflation dynamics in the new EU member countries of Central and Eastern Europe," Empirical Economics, Springer, vol. 45(1), pages 1-22, August.

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    More about this item

    Keywords

    Inflation; Convergence; EU Accession Countries; Distribution Dynamics;
    All these keywords.

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • P22 - Political Economy and Comparative Economic Systems - - Socialist and Transition Economies - - - Prices

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