Template-Type: ReDIF-Paper 1.0
Author-Name: Rob Ackrill and Simeon Coleman
Title: Inflation dynamics in central and eastern European countries 
Abstract: Economic and Monetary Union (EMU) raises important questions about policy
context and design within member states. As EMU membership rises, so it
embraces an increasingly diverse range of countries notwithstanding, the
qualifying convergence criteria. Given the importance of convergent inflation to
the sustainability of EMU with a common monetary policy, understanding the
dynamics of inflation is of particular policy importance. This study uses fractional
integration methods to analyse inflation dynamics in 12 Central and Eastern
European countries. We find evidence of mean-reversion in only seven
countries, with different speeds of reversion across countries. Furthermore,
employing a recently developed time-series approach, we uncover the existence
of multiple statistically distinct I(0)/I(1) regime states in almost all the countries.
This raises the possibility that, as and when these countries join EMU, ECB
monetary policy aimed at euro wide price stability could potentially transmit quite
differently through these economies, resulting in heterogeneous and diverging
inflation outcomes.
File-URL: http://www.ntu.ac.uk/__data/assets/pdf_file/0014/310217/Inflation-dynamics-in-central-and-eastern-european-countries.pdf
File-Format: Application/pdf
File-Function: First version, 2012
Creation-Date: 2012-03
Classification-JEL: C22, E31, E61
Keywords: Inflation, Fractional integration, Multiple changes in persistence.
Handle: RePEc:nbs:wpaper:2012/01