Inflation in Croatia: The Role of Fiscal Policy
December 30, 2025
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After a period of sharp deceleration, inflation in Croatia has inched up since late 2024 to about 4–4½ percent year-on-year lately, among the highest in the euro area. As monetary policy is set at the euro zone level, this paper aims to quantify how fiscal policy has affected inflation in Croatia via the use of a Bayesian VAR model. Results show that fiscal policy, particularly the public wage increase implemented in 2024, explained more than 40 percent of the endogenous variations in inflation in recent quarters.
Subject: Expenditure, Fiscal policy, Fiscal stance, Inflation, Labor, Prices, Wage adjustments, Wages
Keywords: Bayesian VAR, Croatia, Euro Area, Europe, Fiscal Policy, Fiscal stance, IMF country, IMF staff, Inflation, inflation dynamics, inflation in Croatia, issues paper, Macroeconomic Shocks, Price Dynamics, Public Wages, Wage adjustments, Wages
Pages:
24
Volume:
2025
DOI:
Issue:
158
Series:
Selected Issues Paper No. 2025/158
Stock No:
SIPEA2025158
ISBN:
9798229034609
ISSN:
2958-7875
