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Inflation Dynamics in the New EU Member States: How Relevant Are External Factors?
Author(s) -
Mihailov Alexander,
Rumler Fabio,
Scharler Johann
Publication year - 2011
Publication title -
review of international economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.513
H-Index - 58
eISSN - 1467-9396
pISSN - 0965-7576
DOI - 10.1111/j.1467-9396.2010.00932.x
Subject(s) - member states , economics , inflation (cosmology) , new keynesian economics , phillips curve , european union , generalized method of moments , eu countries , sample (material) , international economics , macroeconomics , econometrics , monetary policy , panel data , physics , theoretical physics , thermodynamics
In this paper we evaluate the relative influence of external versus domestic inflation drivers in the 12 new European Union (EU) member countries. Our empirical analysis is based on the New Keynesian Phillips Curve (NKPC) derived in Galí and Monacelli (2005) for small open economies (SOE). Employing the generalized method of moments (GMM), we find that the SOE NKPC is well supported in the new EU member states. We also find that the inflation process is dominated by domestic variables in the larger countries of our sample, whereas external variables are mostly relevant in the smaller countries.