Does the Domestic Output Gap Matter for Inflation in a Small Open Economy?

Hałka, Aleksandra; Kotłowski, Jacek

doi:10.2753/eee0012-8775520305

Cited by 9 publications

(5 citation statements)

References 19 publications

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“…On the one hand, growing importance of the world commodity markets and the increasing openness of the CEE economies causes stronger price reaction to the movements of commodity prices. On the other hand, recent research on the sensitivity of the HICP components to the output gap in Poland provides evidence that more than half of food indices react to the changes in the domestic output gap (see Halka and Kotlowski, 2014). Similar observation is valid for other non-durable goods, which include mainly the energy products.…”

Section: Sector Specific Factorsmentioning

confidence: 75%

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What Common Factors are Driving Inflation in CEE Countries?

Hałka

Szafrański

2018

Prague Economic Papers

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We investigate commonality and heterogeneity of inflationary processes in ten Central and Eastern European (CEE) countries over the period 2001-2013. The research is important for the analysis of monetary policy as it helps understand the origin of price formation from both sectoral and country perspective. With a multi-level factor model we decompose product-level inflation rates into the CEE region-wide, sector, country, country-sector, and idiosyncratic components. The outcomes indicate that CEE region-wide and country specific components are more persistent than sector and product-level components, which is in line with similar studies for core EU countries. Regional factors explain about 17% of variance in monthly price changes, which is more than any other factors (below 10% each). This result is at odds with the assumptions of many sectoral DSGE models and empirical evidence on the importance of sectoral price shocks in developed economies. The difference may be related to the conclusion that the first regional factor is associated with common disinflationary process that occurred in CEE economies in the 2000s, whereas the second one reveals significant correlations with global factors, especially commodity prices and euro area price developments.

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Section: Sector Specific Factorsmentioning

confidence: 75%

“…Services are rather a heterogeneous group which consists of components influenced by strong competition (like communication or insurance services) or partly administered (like services related to dwellings). Those components hardly react to changes in external or domestic economy (compare Halka and Kotlowski, 2014).…”

Section: Sector Specific Factorsmentioning

confidence: 99%

What Common Factors are Driving Inflation in CEE Countries?

Hałka

Szafrański

2018

Prague Economic Papers

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“…The theoretical model (2) implies that HNKPC is stable in the short term, and inflation varies along a fixed HNKPC, without considering that HNKPC may move under various shocks. In order to characterize the effects of various shocks, we introduce other exogenous variables (such as technical shock, federal funds rate shock, exchange rate shock and unit labor costs) [26, 44–46] and random variables in the empirical model. Therefore, the model based on model (2) can be specified as: where π t is the current inflation rate, E t π t +1 denotes the currently expected price changes, π t −1 is the lagged inflation, is the domestic output gap, and denotes the weighted foreign real output gap, which represents the globalization, tech t is the drag of technology on the inflation, also is the variable of interest in this article.…”

Section: Empirical Methodsmentioning

confidence: 99%

Technological progress, globalization and low-inflation: Evidence from the United States

Lv¹,

Liu²,

Xu³

2019

PLoS ONE

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Since the late 1990s, particularly since the global financial crisis, the core inflation of main developed economies’ has been persistently below target. The factors hindering the achievement of inflation targets are nothing more than commodity price, oil supply, weakness of aggregate demand, and various other factors. In addition, technology and globalization have also played a significant role. This paper uses an extended hybrid New Keynesian Phillips Curve (NKPC) model to quantify the contribution of technology and globalization variables to inflation in the United States (U.S.). The analysis suggests that technology and globalization well explain the low inflation dynamics in the U.S., as the impact of globalization on domestic inflation has been weakening over the past 20 years or so, while the impact of technology on inflation has been increasing. At present, technology exerts a greater role than globalization on low-inflation in the U.S.. This raises a different perspective for understanding the phenomenon of low inflation in the U.S. and other regions.

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“…Froehling and Lommatzsch (2011) found the average weight of the output-sensitive index to be 56 per cent for 16 Euro area countries studied. Similarly, Hałka and Kotłowski (2014) calculated this weight as around 55 per cent for Poland. Figure 3 illustrates a country-based comparison regarding the weight of output-sensitive items in respective inflation baskets.…”

Section: Implications For Monetary Policy (I) An International Comparisonmentioning

confidence: 99%

“…Therefore, this study addresses the question of policy effectiveness by employing a disaggregated approach and we investigate the sensitivity of Consumer Price Index (CPI) sub-items to business cycle in Turkey. We follow a similar approach as Froehling and Lommatzsch (2011) and Hałka and Kotłowski (2014), albeit with a more detailed index classification. In this perspective, this study is the first of its kind in Turkey, and it is the first study considering this approach for a non-EU member emerging market economy to the best of our knowledge.…”

Section: Introductionmentioning

confidence: 99%

A Disaggregated Analysis of the Impact of Output Gap on Inflation and Implications for Monetary Policy

Atuk¹,

Ozmen²,

Sarikaya³

2018

Prague Economic Papers

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This study investigates the sensitivity of Consumer Price Index (CPI) sub-items to output gap for an emerging market economy, Turkey. To this aim, we estimate standard Phillips Curve equations for each of the 152 sub-indices of the CPI and determine the goods and services that respond to output gap in a statistically and economically significant manner. Thereby, we propose an alternative view to assess core inflation as a complementary tool to better monitor underlying inflation with respect to its main drivers. Empirical findings show that about one-third of the consumer basket is affected by the output gap. Remaining items that are found to be insensitive to business cycle extensively co-move with import prices and exchange rate. The results imply that controlling inflation through counter-cyclical policies may be a more challenging issue, especially when external factors work in the opposite direction. Policy efforts to reduce exchange rate volatility and import content of aggregate production are as important as cyclical policies geared toward steering the economy with respect to its potential.

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Does the Domestic Output Gap Matter for Inflation in a Small Open Economy?

Abstract: Contents 4 Conclusions 25 References 27 Tables and figures 30 1 N a t i o n a l B a n k o f P o l a n d 2 List of Tables and Figures List of Tables

Cited by 9 publications

References 19 publications

What Common Factors are Driving Inflation in CEE Countries?

What Common Factors are Driving Inflation in CEE Countries?

Technological progress, globalization and low-inflation: Evidence from the United States

A Disaggregated Analysis of the Impact of Output Gap on Inflation and Implications for Monetary Policy

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