High Inflation in the Baltics: Disentangling Inflation Dynamics and Its Impact on Competitiveness

Author/Editor:

Alice Fan ; Bingjie Hu ; Sadhna Naik ; Neree C.G.M. Noumon ; Keyra Primus

Publication Date:

March 15, 2024

Electronic Access:

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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:

Frequency:

regular

English

Publication Date:

March 15, 2024

ISBN/ISSN:

9798400270826/1018-5941

Stock No:

WPIEA2024061

Format:

Paper

Pages:

35

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