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Whose inflation is it anyway? The inflation spillovers between the euro area and small open economies

Author

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  • Aleksandra Hałka
  • Karol Szafranek
Abstract
For the last two years inflation has been systematically falling across countries in the European Union and lately it exhibits rising deflationary pressures. Recent studies suggest that apart from global determinants influencing broad inflation measures, e.g. plummeting commodity prices, core inflation components are subjected to the rising influence of globalization. Our analysis focuses on two aspects: the extent of the HICP components infected with deflation and the spillovers of headline, core, non-energy goods as well as services inflation between the euro area and distinguished small open economies. In order to answer the question of inflation broadness we calculate the percentages of HICP components which dynamics fall into certain thresholds and introduce a simple measure - the Discrepancy Index showing the relative strength of deflationary and inflationary groups. To address the problem of quantifying the inflation spillovers across distinguished economies we use the Diebold and Yilmaz (2012) spillover indices. Results indicate that the share of deflationary groups for most countries has been consistently rising since 2010 with the Discrepancy Index approximating its all-time lows in the fourth quarter of 2014. Simultaneously we show that the spillover index for non-energy industrial goods and services inflation has lately risen considerably with the measure for headline inflation remaining elevated and for core inflation dropping. The euro area remains a net inflation transmitter in most cases.

Suggested Citation

  • Aleksandra Hałka & Karol Szafranek, 2015. "Whose inflation is it anyway? The inflation spillovers between the euro area and small open economies," NBP Working Papers 223, Narodowy Bank Polski.
    • Handle: RePEc:nbp:nbpmis:223
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Cepni, Oguzhan & Clements, Michael P., 2024. "How local is the local inflation factor? Evidence from emerging European countries," International Journal of Forecasting, Elsevier, vol. 40(1), pages 160-183.
    2. Karol Szafranek & Aleksandra Hałka, 2019. "Determinants of Low Inflation in an Emerging, Small Open Economy through the Lens of Aggregated and Disaggregated Approach," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 55(13), pages 3094-3111, October.
    3. Filip Premik & Ewa Stanisławska, 2017. "The Impact of Inflation Expectations on Polish Consumers’ Spending and Saving," Eastern European Economics, Taylor & Francis Journals, vol. 55(1), pages 3-28, January.
    4. Gregor Bäurle & Matthias Gubler & Diego R. Känzig, 2021. "International Inflation Spillovers: The Role of Different Shocks," International Journal of Central Banking, International Journal of Central Banking, vol. 17(1), pages 191-230, March.
    5. Szafranek, Karol, 2017. "Flattening of the New Keynesian Phillips curve: Evidence for an emerging, small open economy," Economic Modelling, Elsevier, vol. 63(C), pages 334-348.
    6. Yang, Tianle & Dong, Qingyuan & Du, Min & Du, Qunyang, 2023. "Geopolitical risks, oil price shocks and inflation: Evidence from a TVP–SV–VAR approach," Energy Economics, Elsevier, vol. 127(PB).
    7. Sara Serra & João Quelhas, 2023. "The inflation process in Portugal: the role of price spillovers," Economic Bulletin and Financial Stability Report Articles and Banco de Portugal Economic Studies, Banco de Portugal, Economics and Research Department.
    8. Paweł Gajewski, 2017. "Sources of Regional Inflation in Poland," Eastern European Economics, Taylor & Francis Journals, vol. 55(3), pages 261-276, May.
    9. Papież, Monika & Rubaszek, Michał & Szafranek, Karol & Śmiech, Sławomir, 2022. "Are European natural gas markets connected? A time-varying spillovers analysis," Resources Policy, Elsevier, vol. 79(C).
    10. Mazumder, Sandeep, 2018. "Inflation in Europe after the Great Recession," Economic Modelling, Elsevier, vol. 71(C), pages 202-213.

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    More about this item

    Keywords

    inflation; spillovers; VAR; disaggregation; small open economy; euro area.;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications

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