Commodity Price Volatility, Cyclical Fluctuations, and Convergence: What is Ahead for Inflation in Emerging Europe?
IMF Working Papers, March 1, 2009
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- Commodity Price Volatility, Cyclical Fluctuations, and Convergence: What is Ahead for Inflation in Emerging Europe?
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Bibliographic details
- Authors: Edda Zoli
- Published: March 1, 2009
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451871890.001
Overview
- Paper assesses the role of international commodity prices, cyclical fluctuations, and convergence in driving inflation in 18 European emerging economies.
- Uses country specific VARs and panel estimates to quantify effects on domestic inflation.
Key findings
- International commodity price shocks have a significant impact on domestic inflation.
- The inflation response to commodity price shocks is asymmetric for positive and negative shocks.
- Cyclical fluctuations explain a relatively small share of inflation variability.
- The inflation response is asymmetric during upturns and downturns.
- Price convergence is estimated to add nearly 3 percentage points to headline inflation for the average country whose price level is about 50 percent relative to the EU-15 average.
Methods and scope
- Econometric approach: country specific VARs and panel estimates.
- Sample: 18 European emerging economies.
- Focused variables and subjects: commodity price shocks, Food prices, Fuel prices, Oil prices, headline inflation, inflation inertia, inflation volatility, exchange rate, Price Convergence.
Policy implications (inferred from findings)
- Monitor international commodity price developments closely given their significant and asymmetric effects on domestic inflation.
- Consider asymmetric policy responses to positive versus negative commodity price shocks.
- Recognize limited explanatory power of cyclical fluctuations for inflation variability when designing stabilization policies.
- Account for price-level convergence pressures that can add nearly 3 percentage points to headline inflation for countries with price levels around 50 percent of the EU-15 average.