Work detail

Inflation Differentials in the European Union: Panel Data Analysis of the Driving Factors for Inflation Differentials in the New Member States

Author: Mgr. Koprnická Kamila
Year: 2009 - summer
Leaders: prof. Roman Horváth Ph.D.
Consultants:
Work type: Doctoral
Language: Czech
Pages: 75
Awards and prizes:
Link:
Abstract: In this rigorous thesis, we analyse inflation differentials in the EU. The aim of the study is
twofold. First, based mainly on literature review, we describe long-term trends and potential
causes of inflation differentials in the euro area as well as in the new EU member states. Second,
we examine the driving factors for inflation differentials in a panel of the new European Union
member states via-à-vis the euro area in 1997–2006. In particular, we use the methodology of the
influential study by Honohan and Lane (2003) exploring the role of nominal effective exchange
rate, cyclical conditions, fiscal policies and price convergence in inflation differentials across the
euro area countries. The application of the same methodology and explanatory variables enables
us direct comparison with results of Honohan and Lane (2003). Our results suggest that the given
factors are important determinants of inflation differentials in the new EU member states, too.
Exchange rate appreciation and a higher price level in the new EU member states are associated
with a narrower inflation differential vis-à-vis the euro area, while a fiscal deficit and a positive
output gap seem to contribute to a higher inflation differential. Nevertheless, the effect of price
convergence on inflation differentials is found to be dominant in these countries. Overall, our
results indicate that real convergence factors rather than cyclical variation are more important for
inflation developments in the new EU member states as compared to the euro area.
Downloadable: Rigorosus thesis

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