Relative Inflation Dynamics in the EU Accession Countries of Central and Eastern Europe

32 Pages Posted: 29 Jan 2011

See all articles by Hiranya K. Nath

Hiranya K. Nath

Sam Houston State University - College of Business Administration - Department of Economics and International Business

Kiril Tochkov

Texas Christian University - Department of Economics

Date Written: January 28, 2011

Abstract

Following their EU accession, the new member countries from Central and Eastern Europe (CEE) must achieve sustainable price stability as one of the pre-conditions for joining the Economic and Monetary Union (EMU) and adopting the euro. This paper examines the distribution dynamics of inflation rates in ten EU members from CEE relative to the EMU accession benchmark inflation over the period 1990-2009. In contrast to previous studies, we use nonparametric methods to test for convergence in inflation rates between CEE and the EMU benchmark as well as within the CEE sample. Over the entire sample period, we detect a general shift in the CEE inflation distribution towards the EMU benchmark along with intradistributional convergence. However, this process is not uniform. In the early years, it was equally likely for CEE inflation rates to move towards or away from the benchmark. The resulting multimodal distribution gave way to a unimodal distribution in the years leading up to the EU accession, accompanied by a marked shift towards the EMU benchmark. In more recent years, emergence of a bimodal distribution signaled the stratification of relative inflation in CEE into two convergence clubs, which has intensified since the start of the global economic crisis.

Keywords: Inflation, Convergence, EU Accession Countries, Distribution Dynamics

JEL Classification: C14, E31, E42, P22

Suggested Citation

Nath, Hiranya K. and Tochkov, Kiril, Relative Inflation Dynamics in the EU Accession Countries of Central and Eastern Europe (January 28, 2011). Available at SSRN: https://ssrn.com/abstract=1750356 or http://dx.doi.org/10.2139/ssrn.1750356

Hiranya K. Nath (Contact Author)

Sam Houston State University - College of Business Administration - Department of Economics and International Business ( email )

SHSU Box 2118
Huntsville, TX 77341-2118
United States

Kiril Tochkov

Texas Christian University - Department of Economics ( email )

Box 298510
Fort Worth, TX 76129
United States
817-257-7554 (Phone)
817-257-5058 (Fax)

HOME PAGE: http://personal.tcu.edu/ktochkov

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