Modelling Inflation in EU Accession Countries: The Case of the Czech Republic, Hungary and Poland

Inflation in Central and East European countries varied considerably over the transition phase, and econometric relationships between prices, money, wages and exchange rates are said to have been unstable during this period. In order to shed some light on the issue, this paper analyses some empirical models of the inflation process in the three earliest east European transition economies: the Czech Republic, Hungary and Poland. Since the end of the 1980s these economies have experienced high rates of inflation, although significant disinflation measures were introduced during the mid-nineties to enhance these countries’ chances of joining the EU, and they succeeded in getting inflation under control without high costs in terms of lost output. Given this, the determinants of inflation need to be empirically analysed not only in order to understand the disinflation measures, but also to assess the possible effects of future pressure on prices. Price stabilisation is an essential complement to the success of transition. Policies to contain inflation are necessary for transition economies to grow and firms to restructure. In the present paper, we first look at inflation within the context of multivariate cointegration, where domestic and foreign price determinants are initially assessed in separate blocks (each single-theory based) in order to obtain a number of long-term attractors. We then formulate consumer and producer inflation equations from more general VEqCMs for each country. The importance of theory-based imbalances (from previous cointegration experiments) in explaining inflation can be assessed at this stage. Our most significant empirical findings seem to substantiate the idea that many, if not all, theoretical determinants of inflation are of importance in those countries in question: the exchange rate and the output gap would appear to be of particular importance in explaining the phenomenon.Inflation modelling, transition economies, European Union enlargement

President Trump and the politics of tragedy

For someone who tries to think in dialectical terms, the catastrophic handling of the immigration crisis in 2015 raised more than just some concern. It appears simply impossible that this kind of blunder could have not generated some kind of equally powerful reaction, or even more accurately, it is hard to think that this will not end up in tragedy. Tragedy not in an exaggerated or metaphorical sense, but, as the classical Greeks envisaged it, as the series of events leading to the destruction of those who have overstepped the boundaries of divine laws (hybris), thus incurring in the wrath of the gods (phthonos theon or nemesis)

The great pushback: Western politics and dynamics of exclusion

A recent piece by Henry Radice on this very blog envisages a connection between different phenomena on the two sides of the Atlantic, namely Mr. Cameron’s political tactics (or strategy?), which has led to the Brexit referendum, and the ascent of Mr. Trump as the Republican nominee in the upcoming US presidential elections. The connection would rest in the background of a widespread, growing anger in the US and UK public, in a “toxic culture of political irresponsibility” (in the GOP), and in an unclear identification of the EU’s role in British politics, as well as of Britain’s position within the EU, from the side of many. This bundle of disparate elements is worth exploring

Beppe Grillo’s bitter moment of truth

The European election results in Italy have been rather surprising. In the context of today’s three-party political landscape (the centre-left Democratic Party, Beppe Grillo’s Five Star Movement, and Berlusconi’s Forza Italia), most pre-vote polls indicated a rise of Grillo’s movement, closing in on current PM Matteo Renzi’s Democratic Party, and with Berlusconi’s faction below 20%. Instead, results have been surprisingly in favour of the ruling establishment, while Grillo has suffered a defeat which, while not so substantial in terms of sheer numbers, entails a deep political cost. Grillo himself appeared confident that his movement might become the first party in Italy. However, the Democratic Party reached 40.8%, against 21.6% for the Five Star Movement, and a meagre 16.8% for Berlusconi. The Northern League has been recovering from a series of scandals and electoral defeats, scoring 6.2% at national level

Italy's election: the path to political radicalisation

The success of the Five Star Movement and Lega in Italy's election was a shock for many observers across Europe. Roberto Orsi writes that the country is now on a path toward further political radicalisation, driven by the failures of previous Italian political leaders and discontent at wider processes of globalisation

Lessons and warnings from Cyprus

The news from Cyprus would have arguably struggled to reach the front page in most European nations if not for the envisaged measure of tackling the financial problems of the country by seizing part of the money deposited – both by foreigners and locals – in the banks of the island. This was of course a major step which surely should have been considered more carefully by the finance ministers of the Eurogroup in the early hours of March 16. This for at least three reasons

The quiet collapse of the Italian economy

While attention on the Euro crisis has been focusing primarily on Greece and Cyprus, it is no mystery that Italy, alongside with Spain, constitutes the real challenge for the future of the common currency, in any direction events will be unfolding. In the relative silence of the international press, Italy’s macroeconomic situation has been showing no sign of improvement, and indeed numerous indicators portray a national economy which finds itself in a depression, rather than in a however severe recession. It is no overstatement that the Italian economy is currently collapsing

The moral question in Italian politics

Corruption in Italy is a constantly debated problem. However, it is largely framed as a moral and legal issue. This piece suggests instead that the root of the corruption problem is political and constitutional, as it lies in the creation and degeneration of clientelistic networks as the most straightforward way for the generation of political consensus given the Italian context. Only a complete overhaul of the state’s fundamental structures, which unfortunately appears unlikely, may diminish the role of clientelism and hence of its teratological developments

A few reflections on the demonisation of Putin

Henry Kissinger once declared that “Putin’s demonisation is not a policy, but an alibi for the absence of one”. However authoritative the source of this recommendation, the collective fixation with the Russian President has reached new heights during the ongoing geopolitical crisis in the Ukraine. In many different ways, the idea that, if the President of the Russian Federation could meet a however premature end of his earthly journey, even by violent means, this would solve the Ukrainian crisis and the problem of Russia’s resurgence, is gaining momentum among Western elites

The European Union at a Crossroads

The European Union is approaching a moment of difficult decisions which will determine whether it will manage to survive in the near future or whether it will enter the final trajectory of its dissolution. In the past few years a series of crises have shaken the very foundations of the European integration project, often with damage which clearly appears irreversible, particularly the ongoing migration crisis, Brexit, and the festering Eurozone crisis. Now a new chapter of the crisis in the common currency is rapidly becoming apparent. On the one hand, Greece is again dealing with financial trouble which would require another round of international intervention; talks of Grexit have re-gained momentum. On the other hand, and adding to that, the worsening of Italy’s financial outlook is bringing about this time unavoidable and fundamental questions about the entire euro-project and its future