High Inflation in the Baltics: Disentangling Inflation Dynamics and Its Impact on Competitiveness
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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. It also analyzes the macroeconomic impact of inflation on competitiveness by focusing on the relationship between wages and productivity in the tradeable sector. The results reveal that 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. Also, there is 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.
Series:
Working Paper No. 2024/061
Subject:
Fiscal policy Fiscal stance Inflation Labor Labor markets Prices Production Productivity Wages
Frequency:
regular
English
Publication Date:
March 15, 2024
ISBN/ISSN:
9798400270826/1018-5941
Stock No:
WPIEA2024061
Format:
Paper
Pages:
35
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