Back Matter

Back Matter

Author(s):
International Monetary Fund. European Dept.
Published Date:
May 2017
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    Annex A. CESEE EU: Impact of Wage Growth on Inflation

    To assess the impact of wage growth on inflation (headline and core) for the CESEE EU countries (Bulgaria, Croatia, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Slovak Republic, and Slovenia), the specification below is estimated using a panel data set for the 11 CESEE EU countries, with quarterly data for 2004:Q2–2016:Q3:

    where πit is headline or core inflation and uit is the error term (specified both with and without country fixed effects).

    The set of explanatory variables X includes domestic variables such as wage growth; the change in the nominal effective exchange rate (+ means appreciation); the change in administered prices and taxes; the percent change in world oil and food prices (converted to local currencies, and weighted by the share of energy and food prices in the Harmonised Index of Consumer Prices). The zj are different measures of euro area inflation (headline or core), either stand alone or interacted with country characteristics such as the exchange rate regime and the share of foreign value added in domestic demand.

    Equation (A1.1) is a variant of an open economy Keynesian Phillips curve common in the literature (see, for example, Galí and Gertler 1999), and follows more closely with the set up in Iossifov and Podpiera (2014). The notable difference with the latter is that it uses wage inflation as an explanatory variable rather than estimated unemployment rate gap or inflation expectation.

    The regression results suggest that for headline inflation, imported inflation (as proxied by euro area inflation), energy and food prices, changes in administered prices and taxes, and changes in the nominal exchange rate have a significant impact (Tables B1–B2). Even for core inflation, euro area inflation and changes in administered prices and taxes remain significant.

    As expected, wage growth affects both headline and core inflation, although its impact is smaller than that of euro area inflation. These results are robust when taking into account countries’ exchange rate regimes or additional country-specific factors. These findings are in line with similar studies of inflation in the CESEE EU economies. For example, Iossifov and Podpiera (2014) find that the unemployment rate gap (that is, deviations from the non-accelerating inflation rate of unemployment) is significant in explaining core inflation for non–euro area EU countries (Bulgaria, Croatia, Czech Republic, Hungary, Lithuania, Poland, Romania, Demark, Sweden, and the United Kingdom), along with a similar set of variables that are considered here (that is, euro area inflation, energy and food prices, changes in administered prices and taxes, changes in the nominal exchange rate). They also find that the impact from imported inflation on domestic inflation is much larger than that of the unemployment rate gap. Also, IMF (2015b), which studies inflation dynamics in the Czech Republic, Poland, Sweden, and Switzerland, comes to similar conclusions.

    Table A1.Estimation Results for Headline Inflation for Equation (A1.1)
    (1)(2)(3)(4)(5)(6)
    Explanatory \Dependent VariablesHeadline inflation
    Inflation (t-1)0.746***0.775***0.746***0.713***0.734***0.694***
    (0.0306)(0.0254)(0.0319)(0.0329)(0.0339)(0.0344)
    Wage growth0.0774***0.0737***0.0776***0.0745***0.0761***0.0752**
    (0.0236)(0.0228)(0.0233)(0.0233)(0.0227)(0.0241)
    Wage growth (t-1)−0.0205−0.0287−0.0200−0.0132−0.0161−0.0118
    (0.0241)(0.0231)(0.0253)(0.0214)(0.0211)(0.0218)
    Change in NEER−0.0485***−0.0529***−0.0485***−0.0448***−0.0488***−0.0447***
    (0.0139)(0.0132)(0.0140)(0.0128)(0.0126)(0.0132)
    Change in NEER (t-1)−0.00770−0.00603−0.00764−0.00635−0.00640−0.00816
    (0.00908)(0.00831)(0.00917)(0.00952)(0.00904)(0.0102)
    Contribution of admin. price1.014***1.028***1.015***1.009***1.025***1.003***
    (0.0947)(0.0904)(0.0952)(0.0983)(0.103)(0.0864)
    Contribution of admin. price (t-1)−0.897***−0.941***−0.894***−0.852***−0.877***−0.820***
    (0.107)(0.100)(0.103)(0.124)(0.122)(0.125)
    Contribution of taxes0.555***0.525***0.556***0.572***0.556***0.583***
    (0.0739)(0.0713)(0.0740)(0.0753)(0.0779)(0.0718)
    Contribution of taxes (t-1)−0.457***−0.488***−0.457***−0.438***−0.453***−0.426***
    (0.0806)(0.0821)(0.0812)(0.0727)(0.0744)(0.0722)
    Change in energy price0.0832***0.0850***0.0834***0.0793***0.0825***0.0782***
    (0.0195)(0.0185)(0.0195)(0.0195)(0.0192)(0.0198)
    Change in energy price (t-1)−0.0656***−0.0362**−0.0668***−0.0644***−0.0604***−0.0616***
    (0.0135)(0.0155)(0.0150)(0.0125)(0.0132)(0.0130)
    Change in food price0.0657***0.0859***0.0648***0.0649***0.0694***0.0636***
    (0.0144)(0.0130)(0.0146)(0.0146)(0.0148)(0.0145)
    Change in food price (t-1)−0.0251−0.0290−0.0246−0.0222−0.0199−0.0205
    (0.0171)(0.0174)(0.0173)(0.0154)(0.0158)(0.0159)
    EA inflation, stand alone0.309***0.319***
    (0.0449)(0.0862)
    EAcoreinflation0.421***−0.0297
    (0.0879)(0.158)
    EAinflation, interacted with FX-regime
    free float0.211***
    (0.0648)
    other managed0.244***
    (0.0654)
    pegged to euro0.570***
    (0.0994)
    euro0.397***
    (0.0782)
    EAinflation, interacted with FX-regime and the share of foreign value-added in demand:
    free float0.00583**
    (0.00232)
    other managed0.00528**
    (0.00183)
    pegged to euro0.0112***
    (0.00235)
    euro0.00568***
    (0.00175)
    EA inflation, interacted with country dummies, not reported
    (0.0755)
    Constant−0.321***−0.388***−0.304**−0.356***−0.264**−0.368***
    (0.0566)(0.103)(0.112)(0.0763)(0.0889)(0.0712)
    Observations530530530530530530
    R-squared0.9560.9550.9560.9580.9560.959
    Numberofcountries111111111111
    Robust standard errors in parentheses*** p<0.01, ** p<0.05, * p<0.1
    Table A2.Estimation Results for Core Inflation for Equation (A1.1)
    (1)(2)(3)(4)(5)(6)
    Explanatory \Dependent VariablesCore inflation
    Core inflation (t-1)0.832***0.831***0.831***0.799***0.798***0.801***
    (0.0241)(0.0237)(0.0233)(0.0140)(0.0134)(0.0180)
    Wage growth0.0600**0.0630**0.0619***0.0578**0.0577**0.0623**
    (0.0197)(0.0202)(0.0193)(0.0187)(0.0186)(0.0201)
    Wage growth (t-1)−0.0186−0.0152−0.0172−0.0106−0.00911−0.00905
    (0.0168)(0.0176)(0.0179)(0.0130)(0.0134)(0.0142)
    Change in NEER−0.0137−0.0122−0.0123−0.0131−0.0135−0.0122
    (0.0119)(0.0114)(0.0114)(0.0123)(0.0123)(0.0118)
    Change in NEER (t-1)−0.00959−0.00826−0.00885−0.00940−0.0101−0.00617
    (0.0155)(0.0157)(0.0159)(0.0154)(0.0154)(0.0170)
    Contribution of admin. price0.590***0.581***0.581***0.585***0.586***0.569***
    (0.116)(0.110)(0.111)(0.121)(0.123)(0.118)
    Contribution of admin. price (t-1)−0.609***−0.587***−0.602***−0.574***−0.574***−0.543***
    (0.121)(0.117)(0.114)(0.119)(0.117)(0.125)
    Contribution of taxes0 329***0.345***0.339***0.344***0.346***0.348***
    (0.0827)(0.0834)(0.0806)(0.0836)(0.0835)(0.0777)
    Contribution of taxes (t-1)−0.327***−0.318**−0.320**−0.329**−0.329**−0.305**
    (0.103)(0.102)(0.102)(0.109)(0.108)(0.108)
    Change in energy price0.001730.002880.001670.004060.004370.00354
    (0.0114)(0.0124)(0.0114)(0.0120)(0.0118)(0.0136)
    Change in energy price (t-1)−0.00649−0.0286**−0.0215**−0.00687−0.00729−0.0296**
    (0.0117)(0.0102)(0.00866)(0.0109)(0.0109)(0.00952)
    Change in food price0.01890.005200.009890.01680.01650.00422
    (0.0114)(0.0105)(0.00781)(0.0115)(0.0114)(0.0111)
    Change in food price (t-1)−0.003320.000143−0.00258−0.00373−0.003070.00140
    (0.0172)(0.0176)(0.0164)(0.0163)(0.0162)(0.0171)
    EA core inflation0.379***0.171
    (0.0963)(0.129)
    EA inflation0.197***0.139
    (0.0600)(0.0862)
    EAcoreinflation, interacted with FX-regime
    free float0.221*
    (0.101)
    other managed0.248***
    (0.0655)
    pegged to euro1.244***
    (0.102)
    euro0.341**
    (0.109)
    EAcoreinflation, interacted with FX-regime and the share of foreign value-added in demand:
    free float0.00789**
    (0.00316)
    other managed0.00698***
    (0.00185)
    pegged to euro0.0293***
    (0.00233)
    euro0.00663***
    (0.00169)
    EA core inflation, interacted with country dummies, not reported
    Constant−0.430***−0.277***−0.381**−0.433***−0.431***−0.284***
    (0.128)(0.0822)(0.123)(0.0936)(0.0854)(0.0803)
    Observations530530530530530530
    R-squared0.9410.9410.9410.9430.9430.945
    Number of countries111111111111
    Robust standard errors in parentheses*** p<0.01, ** p<0.05, * p<0.1
    Annex B. Impact of EU Funds on Growth in the CESEE EU Countries

    The estimates of the impact of the EU funds on growth is based on the following panel regression estimated using data for the 11 CESEE EU countries (Bulgaria, Croatia, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Slovak Republic, and Slovenia) over 2008–15:

    where the subscript i denotes country (i=1,…,11) and the subscript t denotes time (t=2008,…,2015); g is real GDP growth in percent; ESIF is the change in the EU funds in percent of GDP; and zit are the control variables, including the changes in total gross capital formation, government gross capital formation, and private sector gross capital formation measured in percent of GDP.5 The disturbance term uit is specified as follows:

    and contains both a country fixed effect μi and a time effect λt.

    The equation is similar to the setting used in IMF (2010), which studies the impact of fiscal consolidation on growth. Given that this is a dynamic panel, the regression is estimated using the Arellano and Bond dynamic panel generalized method of moments (GMM) estimator (Arellano and Bover 1995). The estimators help partially address potential sensitivity of GMM estimators to the assumption of exogeneity and so forth, and the reported standard errors are also corrected for finite sample bias. The results show that the impact multiplier of the EU funds is between ½ and 2/3 (see Table B1). The results also show that the EU funds’ impact spans more than one period—consistent with the fact that many EU-funded projects, for example, infrastructure projects, are generally multiyear endeavors.

    Table B1.Estimation Results for Equation (B1.1)
    Explanatory Variables \ Dependent Variable: real GDP growth(1)(2)(3)(4)(5)
    real GDP growth (t-1)0.315***0.492***0.509***0.316***0.448***
    (0.0662)(0.107)(0.0805)(0.0860)(0.0986)
    Change in EU funds absorption0.645***0.478***0.647***0.477**0.663***
    (0.157)(0.182)(0.150)(0.194)(0.142)
    Change in EU funds absorption (t-1)1.176***1.009***1.005***1.284***1.143***
    (0.203)(0.278)(0.227)(0.266)(0.196)
    Change in EU funds absorption (t-2)1 719***1 234***1.294***1.737***1.364***
    (0.177)(0.204)(0.177)(0.218)(0.175)
    Change in Gross Capital Formation (Priv. Sector)−0.004520.0149
    (0.153)(0.146)
    Change in Gross Capital Formation (Priv. Sector) (t-1)−0.397***−0.372***
    (0.124)(0.129)
    Change in Gross Capital Formation (Priv. Sector) (t-2)−0.129**−0.0935
    (0.0592)(0.0902)
    Change in Gross Capital Formation (Government)0.768***0.621***
    (0.292)(0.237)
    Change in Gross Capital Formation (Government) (t-1)0.5330.447
    (0.384)(0.424)
    Change in Gross Capital Formation (Government) (t-2)0.0351−0.119
    (0.409)(0.480)
    Change in Total Gross Capital Formation0.221
    (0.138)
    Change in Total Gross Capital Formation (t-1)−0.293**
    (0.130)
    Change in Total Gross Capital Formation (t-2)−0.0277
    (0.0980)
    Observations6666666666
    Number of countries1111111111
    Robust standard errors in parentheses.*** p<0.01, ** p<0.05, * p<0.1
    Appendix I. CESEE: Growth of Real GDP, Domestic Demand, Exports, and Private Consumption, 2015–18

    (Percent)

    Real GDP GrowthReal Domestic Demand GrowthRea l Export Growth (goods and services)Real Private Consumption Growth
    2015201620172018201520162017201820152016201720182015201620172018
    Baltics12.02.02.83.14.12.53.43.80.42.93.43.54.04.63.53.6
    Estonia1.41.62.52.80.72.63.23.7−0.63.63.43.44.64.03.13.6
    Latvia2.02.03.03.32.43.04.34.12.62.62.53.23.53.43.53.5
    Lithuania1.82.32.83.16.72.13.03.6−0.42.93.83.74.15.53.63.7
    Central and Eastern Europe1352.03.23.03.42.33.43.37.67.06.05.53.03.93.63.2
    Czech Republic4.52.42.82.24.81.42.72.57.74.33.83.53.02.92.82.6
    Hungary3.12.02.93.01.42.23.13.07.76.96.36.63.17.23.33.1
    Poland3.02.83.43.23.42.83.73.77.78.47.06.03.23.64.03.6
    Slovak Republic3.03.33.33.74.70.93.33.57.04.85.25.72.22.93.23.0
    Slovenia232.52.52.01.42.03.02.55.65.93.53.70.52.82.12.0
    Southeastern Europe-EU13.04.23.03.14.54.44.53.56.17.05.85.75.05.75.33.6
    Bulgaria3.63.42.92.73.51.63.12.85.75.73.53.94.52.13.03.0
    Croatia1.62.92.92.61.23.13.73.210.06.75.55.01.23.33.52.9
    Romania3.94.84.23.45.55.65.23.85.47.66.66.56.07.46.53.9
    Southeastern Europe-non-EU12.22.83.23.61.92.42.93.17.28.46.96.51.72.12.32.7
    Albania2.63.43.74.10.13.84.51.8−0.26.03.24.90.90.93.63.9
    Bosnia and Herzegovina3.12.53.03.51.52.73.63.77.63.83.44.52.92.42.82.6
    Kosovo4.13.63.53.64.35.04.33.42.51.73.74.23.85.53.73.4
    Macedonia, FYR3.82.43.23.43.41.52.22.86.711.511.810.53.74.23.22.6
    Montenegro3.42.43.33.44.77.65.06.79.43.54.43.42.25.01.73.8
    Serbia0.82.83.03.51.41.11.93.010.211.98.97.50.50.81.32.2
    European CIS countries1−3.4−0.11.41.6−9.3−1.51.21.72.32.33.63.7−10.2−4.11.52.1
    Belarus−3.8−3.0−0.80.6−7.61.2−1.8−1.62.17.62.52.4−2.31.7−0.3−0.3
    Moldova−0.44.04.53.7−5.8−4.14.03.32.314.84.33.1−2.32.93.03.4
    Russia−2.8−0.21.41.4−9.1−2.31.11.73.72.33.83.8−9.7−5.01.42.1
    Ukraine−9.82.32.03.2−12.16.04.03.9−13.2−1.62.03.4−20.51.83.12.9
    Turkey6.12.92.53.35.44.21.83.04.2−2.04.14.05.52.32.63.2
    CESEE1,20.81.52.22.4−2.11.02.12.54.12.84.54.3−2.6−0.12.52.7
    Emerging Europe1,30.51.42.12.4−2.71.02.02.54.02.74.54.4−3.1−0.52.42.7
    New EU member states1,43.03.03.33.03.72.03.63.46.86.85.85.53.54.44.03.3
    Memorandum
    Euro Area12.01.01.71.61.92.01.71.66.52.94.03.91.82.01.51.5
    European Union12.41.92.01.82.22.22.01.85.73.04.03.72.22.31.91.7
    Sources: IMF World Economic Outlook database; and Fund staff estimates.

    Weighted averages using 2015 GDP valued at purchasing power parity.

    Includes Albania, Belarus, Bosnia and Herzegovina, Bulgaria, Croatia, Czech Republic, Estonia, Hungary, Kosovo, Latvia, Lithuania, Macedonia FYR,Moldova, Montenegro, Poland, Romania, Russia, Serbia, Slovak Republic, Slovenia, Turkey, and Ukraine.

    CESEE excluding Czech Republic, Estonia, Latvia, Lithuania, Slovak Republic, and Slovenia.

    Includes Bulgaria, Croatia, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Slovak Republic, and Slovenia.

    Appendix II. CESEE: CPI Inflation, Current Account Balance, and External Debt, 2015–18

    (Percent)

    CPI Inflation (Period average)CPI Inflation (End of period)Current Account Balance to GDPTotal External Debt to GDP
    2015201620172018201520162017201820152016201720182015201620172018
    Baltics1−0.30.52.92.30.02.12.42.0−0.90.6−0.8−0.998.3103.0101.597.8
    Estonia0.10.83.22.5−0.22.43.42.32.22.71.40.994.891.185.880.6
    Latvia0.20.12.82.50.42.11.51.7−0.81.5−1.1−1.4141.6147.3140.9136.4
    Lithuania−0.70.72.82.0−0.22.02.42.0−2.3−0.9−1.6−1.574.482.385.482.7
    Central and Eastern Europe1−0.5−0.22.22.3−0.21.12.32.30.51.00.0−0.277.177.377.873.7
    Czech Republic0.30.72.31.80.02.02.31.80.91.11.20.769.470.776.570.5
    Hungary−0.10.42.53.30.91.82.83.03.44.93.73.0104.590.187.678.8
    Poland−0.9−0.62.32.3−0.50.82.32.4−0.6−0.3−1.7−1.869.273.972.970.1
    Slovak Republic−0.3−0.51.21.5−0.50.21.41.60.20.40.30.283.781.185.283.6
    Slovenia−0.5−0.11.52.0−0.40.51.42.05.26.85.55.1114.3103.6104.1101.2
    Southeastern Europe-EU1−0.7−1.41.22.6−0.9−0.41.92.6−0.1−0.2−0.9−0.966.161.561.157.9
    Bulgaria−1.1−1.31.01.8−0.9−0.51.71.8−0.14.22.32.074.769.067.865.4
    Croatia−0.5−1.11.11.1−0.60.20.81.25.12.62.81.8101.592.889.784.2
    Romania−0.6−1.61.33.1−0.9−0.52.23.1−1.2−2.3−2.8−2.555.452.152.749.7
    Southeastern Europe-non-EU10.70.41.92.40.71.02.22.5−6.1−5.9−6.9−6.971.267.868.366.6
    Albania1.91.32.32.92.02.22.63.0−10.8−9.6−13.7−13.049.447.548.446.9
    Bosnia and Herzegovina−1.0−1.11.41.7−1.2−0.31.92.1−5.7−4.5−6.3−6.363.363.862.762.3
    Kosovo−0.50.30.91.8−0.11.31.01.8−8.5−9.8−10.8−11.112.211.213.513.7
    Macedonia, FYR−0.3−0.20.61.7−0.3−0.21.51.9−2.1−3.1−1.8−2.068.166.970.971.5
    Montenegro1.2−0.42.11.51.50.81.51.4−13.3−18.9−22.0−25.6160.9165.3166.2170.3
    Serbia1.41.12.63.01.61.52.63.0−4.7−4.0−4.0−4.084.176.676.472.3
    European CIS countries118.17.85.24.815.36.15.14.54.21.12.42.648.150.644.343.4
    Belarus13.511.89.38.712.010.610.09.1−3.6−3.6−4.7−5.067.979.674.673.4
    Mol dova9.66.45.55.913.52.46.55.5−5.0−3.4−3.8−4.097.797.492.892.7
    Russia15.57.04.54.212.95.44.44.05.11.73.33.539.542.435.234.2
    Ukraine48.713.911.59.543.312.410.07.0−0.3−3.6−3.6−2.9130.0123.8127.4126.3
    Turkey7.77.810.19.18.88.510.08.8−3.7−3.8−4.7−4.646.147.153.152.9
    CESEE1,210.05.25.24.99.04.95.24.71.1−0.2−0.10.056.457.555.854.1
    Emerging Europe1,310.95.65.55.29.85.25.55.01.2−0.4−0.2−0.154.055.253.151.7
    New EU member states1,4−0.5−0.42.02.4−0.40.82.22.30.30.7−0.3−0.475.875.175.371.4
    Sources: IMF World Economic Outlook database; and Fund staff estimates.

    Weighted averages using 2015 GDP valued at purchasing power parity.

    Includes Albania, Belarus, Bosnia and Herzegovina, Bulgaria, Croatia, Czech Republic, Estonia, Hungary, Kosovo, Latvia, Lithuania, Macedonia FYR, Moldova, Montenegro, Poland, Romania, Russia, Serbia, Slovak Republic, Slovenia, Turkey, and Ukraine.

    CESEE excluding Czech Republic, Estonia, Latvia, Lithuania, Slovak Republic, and Slovenia.

    Includes Bulgaria, Croatia, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Slovak Republic, and Slovenia.

    Appendix III. CESEE: Evolution of Public Debt and General Government Balance, 2015–181

    (Percent of GDP)

    General Government BalancePublic Debt
    20152016201720182015201620172018
    Baltics2−0.50.1−0.6−0.533.132.630.829.7
    Estonia0.10.30.3−0.210.19.59.08.7
    Latvia3−1.5−0.4−1.2−0.334.837.533.732.1
    Lithuania−0.20.3−0.6−0.742.540.038.937.7
    Central and Eastern Europe2−2.1−1.7−2.3−2.053.754.654.453.6
    Czech Republic−0.60.6−0.20.040.337.236.034.6
    Hungary−1.6−1.7−2.6−2.574.774.173.371.9
    Poland−2.6−2.4−2.9−2.651.154.254.654.1
    Slovak Republic−2.7−2.0−1.8−1.152.552.351.950.9
    Slovenia3−3.6−1.8−2.5−2.683.179.777.777.4
    Southeastern Europe-EU2−2.0−1.3−2.9−3.043.143.143.143.6
    Bulgaria3−2.81.6−1.3−1.025.627.824.524.1
    Croatia3−3.3−0.8−1.9−1.886.784.283.181.6
    Romania−1.5−2.4−3.7−3.939.439.140.641.7
    Southeastern Europe-non-EU2−3.0−1.4−1.8−2.060.759.958.657.0
    Albania3−4.1−1.7−1.0−2.173.772.768.664.8
    Bosnia and Herzegovina−0.40.4−0.8−0.845.444.842.541.1
    Kosovo3,4−1.9−1.5−2.5−2.818.920.823.524.5
    Macedonia, FYR−3.5−2.6−3.3−3.438.239.137.639.2
    Montenegro3−4.8−6.0−7.5−8.769.370.074.378.7
    Serbia3−3.7−1.3−1.4−1.276.074.172.870.1
    European CIS countries2−3.3−3.5−2.8−2.222.623.624.624.7
    Belarus3,5−4.9−1.5−7.4−7.753.052.258.063.1
    Moldova3−2.3−2.1−3.7−3.338.538.140.241.5
    Russia3−3.4−3.7−2.6−1.915.917.017.117.3
    Ukraine3−1.2−2.2−3.0−2.579.381.289.885.3
    Turkey3−1.6−2.3−3.2−2.327.629.129.829.8
    CESEE2,6−2.5−2.6−2.7−2.232.533.534.033.8
    Emerging Europe2,7−2.6−2.8−2.9−2.331.432.733.333.2
    New EU member states2,8−2.0−1.5−2.3−2.149.850.450.249.6
    Sources: IMF World Economic Outlook database; and Fund staff estimates.

    As in the WEO, general government balances reflect IMF staff’s projections of a plausible baseline, and as such contain a mixture of unchanged policies and efforts under programs, convergence plans, and medium-term budget frameworks. General government overall balance where available; general government net lending/borrowing elsewhere. Public debt is general government gross debt.

    Weighted averages using 2015 GDP valued at purchasing power parity.

    Reported on a cash basis.

    Public debt includes former Yugoslav debt, not recognized by Kosovo.

    General government balance: the measure reflects augmented balance, which adds to the balance of general government outlays for banks recapitalizations and is related to called guarantees of publicly-guaranteed debt.

    Includes Albania, Belarus, Bosnia and Herzegovina, Bulgaria, Croatia, Czech Republic, Estonia, Hungary, Kosovo, Latvia, Lithuania, Macedonia FYR, Moldova, Montenegro, Poland, Romania, Russia, Serbia, Slovak Republic, Slovenia, Turkey, and Ukraine.

    CESEE excluding Czech Republic, Estonia, Latvia, Lithuania, Slovak Republic, and Slovenia.

    Includes Bulgaria, Croatia, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Slovak Republic, and Slovenia.

    Abbreviations

    ALB

    Albania

    AUT

    Austria

    ARA

    assessing reserve adequacy

    BGR

    Bulgaria

    BIH

    Bosnia and Herzegovina

    BIS

    Bank for International Settlements

    BLR

    Belarus

    CEE

    Central and Eastern Europe

    CESEE

    Central, Eastern, and Southeastern Europe

    CIS

    Commonwealth of Independent States

    CPI

    consumer price inflation

    CZE

    Czech Republic

    DEU

    Germany

    ECB

    European Central Bank

    EIB

    European Investment Bank

    EM

    emerging market economies

    EMBIG

    Emerging Markets Bond Index Global

    EPFR

    Emerging Portfolio Fund Research

    ESIF

    EU Structural and Investment Funds

    EST

    Estonia

    EU

    European Union

    FIN

    Finland

    FDI

    foreign direct investment

    FRA

    France

    FX

    foreign exchange

    GDP

    gross domestic product

    GRC

    Greece

    HICP

    Harmonised Index of Consumer Prices

    HUN

    Hungary

    IMF

    International Monetary Fund

    ITA

    Italy

    LTU

    Lithuania

    LVA

    Latvia

    LUX

    Luxembourg

    MDA

    Moldova

    MKD

    Former Yugoslav Republic of Macedonia

    MNE

    Montenegro

    NPL

    non-performing loan

    OECD

    Organisation for Economic Co-operation and Development

    PMI

    Purchasing Managers Index

    POL

    Poland

    REI

    Regional Economic Issues

    ROU

    Romania

    RUS

    Russia

    SA

    seasonally adjusted

    SEE

    Southeastern Europe

    SOE

    state-owned enterprise

    SRB

    Serbia

    SVK

    Slovak Republic

    SVN

    Slovenia

    TUR

    Turkey

    UK

    United Kingdom

    UKR

    Ukraine

    UVK

    Kosovo

    WEO

    World Economic Outlook

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    In a few countries (Bulgaria, Romania, Slovak Republic), the increase in private investment (for example, the automotive industry in the Slovak Republic and residential construction in Romania) partly offset the decline in public investment.

    For example, Peneva and Rudd (2015) find that the pass-through from labor costs to inflation has declined considerably and almost disappeared in the United States in recent periods.

    This is in line with Iossifov and Podpiera (2014), who also find a significant but small impact of the unemployment rate gap on inflation and a larger impact of euro area inflation.

    See similar arguments in IMF (2017a), where for Estonia, rapid unit labor cost growth and the deterioration of other competitiveness indicators (such as export market shares and profitability in the tradables sector) raise concerns that further unmitigated wage growth runs the risk of hurting competitiveness.

    The correlation between change in EU funds absorption and change in government investment is very low (0.08). Reflecting weak total investment and decline in private investment, the correlations for change in EU funds absorption and private investment and total investment are –is 0.3 and −0.27, respectively. Therefore, collinearity is not a major concern for the estimation.

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