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Europe > Ukraine

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Cover IMF Working Papers
Is Inflation Good for Business? The Firm-Level Impact of Inflation Shocks in the Baltics, 1997-2021
Serhan Cevik
,
Alice Fan
, and
Sadhna Naik
Using a large panel of firm-level data, this paper provides an analysis of how inflation shocks in the Baltics between 1997 and 2021 affected total factor productivity (TFP), gross profitability, and net fixed investment in nonfinancial sectors. First, we find that inflation and inflation volatility had mixed effects on TFP growth, profitability and net fixed investment in the first year as well as over the medium term, albeit at a dissipating rate. Second, focusing on subsamples, we find that inflation shocks had differential effects on large versus small firms. Third, we explore sectoral heterogeneity in how firms responded to inflation shocks and observe significant variation across tradable and non-tradable sectors. Finally, estimates from a state-dependent model suggest that firms’ response to inflation shocks varied with the state of the economy. The results suggest that nonfinancial firms in the Baltics have been agile in adjusting to inflation shocks, possibly by either transferring higher production costs to consumers or substituting inputs. Given the differences in the level and nature of the recent inflation shock and the sample period on which our analysis is based, empirical findings presented in this paper might not necessarily apply to the latest bout of inflation in the Baltics.
Keywords:
Inflation; firm performance; productivity; profitability; fixed investment; Baltics; Estonia; Latvia; Lithuania; inflation shock; inflation volatility; IMF working paper No. 24/43; nonfinancial firm; impact of inflation; affected total factor productivity; Total factor productivity; Economic recession
Cover IMF Working Papers
The Shifting and Steepening of Phillips Curves During the Pandemic Recovery: International Evidence and Some Theory
Tryggvi Gudmundsson
,
Chris Jackson
, and
Rafael A Portillo
We study the global inflation surge during the pandemic recovery and the implications for aggregate and sectoral Phillips curves. We provide evidence that Phillips curves shifted up and steepened across advanced economies, and that differences in the inflation response across sectors imply the relative price of goods has been pro-cyclical this time around rather than a-cyclical as during previous cycles. We show analytically that these three features emerge endogenously in a two-sector new-Keynesian model when we introduce unbalanced recoveries that run against a supply constraint in the goods sector. A calibrated exercise shows that the resulting changes to the output-inflation relation are quantitatively important and improve the model's ability to replicate the inflation surge during this period.
Keywords:
Inflation; Phillips Curves; COVID-19; inflation surge; output-inflation relation; sectoral Phillips curves; inflation response; goods price; Output gap; Business cycles; Economic recession; Global