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Cointegration Approach to Analysing Inflation in Croatia

Lena Maleševic-Perović, Faculty of Economics, Split, Croatia

The aim of this paper is to analyse the determinants of inflation in Croatia in the period 1994:6-2006:6. We use a cointegration approach and find that increases in wages positively influence inflation in the long-run. Furthermore, in the period from June 1994 onward, the depreciation of the currency also contributed to inflation. Money does not explain Croatian inflation. This irrelevance of the money supply is consistent with its endogeneity to exchange rate targeting, whereby the money supply is determined by developments in the foreign exchange market. The value of inflation in the previous period is also found to be significant, thus indicating some inflation inertia.

Keywords:  inflation, Croatia, cointegration

Year:  2009   |   Volume:  33   |   Issue:  2   |   Pages:  201 - 218

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 June, 2009
II / 2009
EBSCO Publishing
ISSN 1846-887X
e-ISSN 1845-9757
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