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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