{
  "title": "High Inflation in the Baltics: Disentangling Inflation Dynamics and Its Impact on Competitiveness",
  "publication": "IMF Working Papers, March 15, 2024",
  "sourceUrl": "https://www.imf.org/en/publications/wp/issues/2024/03/15/high-inflation-in-the-baltics-disentangling-inflation-dynamics-and-its-impact-on-546352",
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  "summary": "This paper identifies and quantifies the drivers of inflation dynamics in the three Baltic economies and assesses the effectiveness of fiscal policy in fighting inflation.",
  "sections": [
    {
      "heading": "Summary",
      "content": "- Identifies and quantifies the drivers of inflation dynamics in the three Baltic economies.\n- Assesses the effectiveness of fiscal policy in fighting inflation.\n- Analyzes the macroeconomic impact of inflation on competitiveness by focusing on the relationship between wages and productivity in the tradeable sector.\n- Main result: inflation in the Baltics is largely driven by global factors, but domestic demand matters as well, suggesting that fiscal policy can play a role in containing inflation.\n- Main result: robust evidence of a long-run (cointegration) relationship between (real) wages in the tradeable (manufacturing) sector and productivity in the Baltics with short-term deviations self-correcting in Estonia and Lithuania only."
    },
    {
      "heading": "Major findings",
      "content": "- Inflation drivers\n  - Global factors are the primary drivers of inflation in the Baltics.\n  - Domestic demand also contributes meaningfully to inflation dynamics.\n- Fiscal policy role\n  - Fiscal policy can play a role in containing inflation given the contribution of domestic demand.\n- Wage-productivity relationship\n  - Robust long-run (cointegration) relationship between (real) wages in the tradeable (manufacturing) sector and productivity in the Baltics.\n  - Short-term deviations from this relationship are self-correcting in Estonia and Lithuania only (not in all three Baltics)."
    },
    {
      "heading": "Policy implications and recommendations",
      "content": "- Use of fiscal stance\n  - Given domestic demand’s contribution to inflation, a prudent fiscal stance can help contain inflationary pressures.\n- Competitiveness considerations\n  - Monitoring and aligning wage growth with productivity in the tradeable/manufacturing sector is important for maintaining competitiveness.\n  - Pay particular attention to mechanisms that correct short-term deviations in Estonia and Lithuania and explore policy options for Latvia where self-correction is not evidenced."
    },
    {
      "heading": "Analytical focus and scope",
      "content": "- Geographic scope: the three Baltic economies.\n- Sectoral focus: tradeable sector, with emphasis on manufacturing for the wage-productivity nexus.\n- Approach: identification and quantification of inflation drivers; assessment of fiscal policy effectiveness; cointegration analysis of wages and productivity.\n\nAlice Fan, Bingjie Hu, Sadhna Naik, Neree C.G.M. Noumon, and Keyra Primus. \"High Inflation in the Baltics: Disentangling Inflation Dynamics and Its Impact on Competitiveness\", IMF Working Papers 2024, 061 (March 15, 2024).\n\n---\n\n Content in this bundle\n\n- Working Paper\n  - Working Paper (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - Working Paper (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/wp/issues/2024/03/15/high-inflation-in-the-baltics-disentangling-inflation-dynamics-and-its-impact-on-546352"
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    "Authors: Alice Fan, Bingjie Hu, Sadhna Naik, Neree C.G.M. Noumon, Keyra Primus",
    "Published: March 15, 2024",
    "Series: IMF Working Papers",
    "DOI: https://doi.org/10.5089/9798400270826.001",
    "Identifies and quantifies the drivers of inflation dynamics in the three Baltic economies.",
    "Assesses the effectiveness of fiscal policy in fighting inflation.",
    "Analyzes the macroeconomic impact of inflation on competitiveness by focusing on the relationship between wages and productivity in the tradeable sector.",
    "Main result: inflation in the Baltics is largely driven by global factors, but domestic demand matters as well, suggesting that fiscal policy can play a role in containing inflation.",
    "Main result: robust evidence of a long-run (cointegration) relationship between (real) wages in the tradeable (manufacturing) sector and productivity in the Baltics with short-term deviations self-correcting in Estonia and Lithuania only.",
    "Inflation drivers",
    "Fiscal policy role",
    "Wage-productivity relationship",
    "Use of fiscal stance",
    "Competitiveness considerations",
    "Geographic scope: the three Baltic economies.",
    "Sectoral focus: tradeable sector, with emphasis on manufacturing for the wage-productivity nexus.",
    "Approach: identification and quantification of inflation drivers; assessment of fiscal policy effectiveness; cointegration analysis of wages and productivity.",
    "**Working Paper**"
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