Patterns of regional inflation persistence in a C.E.E. country. The case of Poland

Abstract

This paper investigates patterns of regional inflation persistence in Poland, a representative Central and Eastern European (C.E.E.) country. This study first argues that the C.E.E. perspective is relevant in the context of this study, due to the recent transitions, incomplete processes of forming forward-looking inflation expectations and pronounced spatial inequalities. Using individual and panel regressions on disaggregate data, this study provides evidence of the aggregation bias and marked differences in inflation persistence across product categories. Furthermore, it shows that cross-regional differences in inflation persistence remain, even after controlling for the product category. While this study generally confirms the earlier finding of Vaona and Ascari that more backward regions exhibit higher consumer price index inflation persistence, we also show that the picture is more nuanced at the product category level.

Regional inflation persistence in Turkey

“…In the literature, three main methodologies have been used. First, univariate autoregressive functions in the following form have often been adopted (Altissimo et al, 2007; Barsky et al., 2003; Carlos, 2004; Clark, 2006; Erceg & Levin, 2006; Gajewski, 2018; Levin & Piger, 2004; Lünneman & Matha, 2004; O'Reilly & Whelan, 2005; Tillman, 2013; Vaona & Ascari, 2012)…”

“…Hence, prices are shown to become more flexible over time. Gajewski (2018) analyzed 16 Polish Nuts‐2 regions over the period 2005Q1 to 2016Q3 and found that quarterly inflation persistence varied between 0.52 and 0.73. Overall, the Turkish case is roughly similar to what is observed in Italy, Korea, and Poland.…”

“…In theory, high level of inflation and related expectations are claimed to increase the frequency of price changes (Sheshinsky & Weiss, 1977). Moreover, forward‐looking inflationary expectations, possibly, lead to more flexible prices (Cecchetti & Debelle, 2006; Gajewski, 2018).…”

“…(Altissimo et al., 2006; Cecchetti & Debele, 2006; Dhyne et al., 2005). Some exceptions include Zsibók and Varga (2012), Tillman (2013), and Gajewski (2018).…”

“…Industrial mix is another explanatory variable that regions that include highly flexible sectors are likely to have less inflation persistence (Barsky et al., 2003; Erceg & Levin, 2006). Other less mentioned determinants are regional income level (Gajewski, 2018), inflation level (Sheshinsky & Weiss, 1977), and inflationary expectations (Cecchetti & Debelle, 2006). Our intention in this paper is to search for additional determinants, while testing in the meanwhile the validity of the above‐explained variables.…”