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High Inflation in the Baltics: Disentangling Inflation Dynamics and Its Impact on Competitiveness
Author:
Alice Fan
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,
Bingjie Hu
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,
Sadhna Naik
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,
Neree C.G.M. Noumon
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Keyra Primus
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Series:
IMF Working Papers
Volume/Issue:
Volume 2024: Issue 061
Language:
English
Publication Date:
15 Mar 2024
DOI:
https://doi.org/10.5089/9798400270826.001
ISBN:
9798400270826
ISSN:
1018-5941
Pages:
35
Keywords:
Inflation Dynamics; Competitiveness; Baltics; labor productivity Wage-Productivity nexus; food inflation; inflation in the Baltic; energy inflation; Wage-Productivity growth nexus; Inflation; Wages; Productivity; Labor markets; Fiscal stance; Global
Legal-disclaimer:
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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This paper identifies and quantifies the drivers of inflation dynamics in the three Baltic economies and assesses the effectiveness of fiscal policy in fighting inflation. It also analyzes the macroeconomic impact of inflation on competitiveness by focusing on the relationship between wages and productivity in the tradeable sector. The results reveal that inflation in the Baltics is largely driven by global factors, but domestic demand matters as well, suggesting that fiscal policy can play a role in containing inflation. Also, there is robust evidence of a long-run (cointegration) relationship between (real) wages in the tradeable (manufacturing) sector and productivity in the Baltics with short-term deviations self-correcting in Estonia and Lithuania only.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund