Petar Sorić

Assessing the sensitivity of consumption expenditure to inflation sentiment in post-communist economies

The aim of this article is to examine the influence of inflation sentiment on aggregate consumption. The study adds to the existing literature by i) emphasising the role of inflation perceptions and expectations in determining consumption patterns, ii) using structural VAR methodology that has not yet been applied in consumer studies, iii) employing an extensive dataset of eight individual post-communist countries (Czech Republic, Estonia, Hungary, Lithuania, Poland, Romania, Slovakia and Slovenia). Using innovation analysis it is shown that the theoretically expected conclusions are valid: consumers instantaneously decrease their consumption expenditure in response to shocks in perceived inflation, while their reaction to shocks in near-term inflation expectations is an abrupt (but temporary) consumption boost.

ASSESSING CROATIAN GDP COMPONENTS VIA ECONOMIC SENTIMENT INDICATOR

Abstract This paper is an attempt of applying Business Survey results in creation of a holistic macroeconomic model for Croatia. Since the BUSY model (1982.), there exists an aspiration for forming a statistical business survey model that will forecast main GDP components for individual EU countries in the short run. However, the idea hasn’t yet been applied in practice in Croatia. Therefore the statistical relationship between the Economic Sentiment Indicator (ESI) and corresponding official statistics series will be analyzed in order to see how the changes in ESI reflect on various segments of economic activity in Croatia. On the basis of two VAR models it can be seen that ESI can help in short-run forecasting of Croatian GDP and private consumption as its main component. It was shown that other GDP components don’t exhibit a strong statistical connection with ESI.

Inflation in New EU Member States: A Domestically or Externally Driven Phenomenon?

ABSTRACT This article empirically analyzes the domestic and external inflation determinants for eight non-eurozone new EU member states (NMS), using a structural vector autoregression model. Results indicate that foreign shocks are a major factor in explaining inflation dynamics in the medium run, while the short-run inflation dynamics are mainly influenced by domestic shocks. Moreover, the importance of the foreign inflation component has had a rising trend in the precrisis period in all NMS and mostly coincided with their accession to the EU. This trend ended with the onset of the global financial crisis. The study implicates the need to augment the classical Taylor rule with foreign factors in the case of small open economies.

A critical re-examination of the Carlson–Parkin method

ABSTRACT The euro area has been experiencing a long period of inflation well below the targeted 2%. This has once again brought the problem of quantifying inflation expectations into the scientific focus. Within the framework of the Carlson–Parkin (CP) method, previous research has mostly focused on altering the probability distributions. Analysing as much as 2688 versions of the CP method, we prove that the distribution choice provides only minor improvements in the forecasting accuracy. On the other hand, the method assumptions (unbiased expectations and the number of survey response categories) play the pivotal role. We make an attempt to provide an assumptions-free quantification method by recognizing the fact that agents perceive ‘moderate’ inflation through the inflation targeting policy.

The interrelationship between media reports and the recession in Croatia

Abstract This paper builds upon the Economist’s R-word (recession) index by forming a Croatian version of a media news-based economic uncertainty measure. Using the web archives of the four major Croatian news portals (Index.hr, Jutarnji list, Večernji list and 24 sata), an extensive database of as much as 531107 news articles is formed. The R-word index is obtained by calculating the monthly share of recession-related articles. This way Croatia is placed among the few rare world countries which have their own version of this index. It is found that the index is a leading indicator of economic activity in Croatia, preceding GDP growth rates by two months. Using rolling window correlations, the authors also prove that economic agents react to uncertainty shocks in the most intensive manner precisely at the onset of an economic crisis, while the correlation decreases in periods of more stable economic growth rates.

Personal Finances Vs. The Overall Economic Conditions : What Drives The New EU Member States’ Stock Markets?

Abstract This paper analyses the leading characteristics of the Consumer Confidence Index (CCI) with respect to stock market returns for 11 New EU Member States. It proposes novel CCI weights by minimizing mean squared errors from regression forecasting equations, using CCI lags as regressors. With regards to the obtained “optimal” weights, the examined countries are grouped into micro‑ and macro‑oriented clusters. A strong shift is found in the weights due to the recent recession. The micro aspects (reflecting the wealth effect) severely lose their importance in the crisis, while the consumers’ macroeconomic sentiments grow in significance and constitute a separate transmission channel.

Systemic competitiveness of post-socialist and capitalist economies: a broader look at the competitiveness debate

International competitiveness studies have hitherto mainly been focused on constructing ranking schemes. This article adds to the literature by analysing World Competitiveness Yearbook data in order to econometrically pinpoint the crucial competitiveness determinants for 35 countries. Applying the system GMM panel data estimator to post-socialist (PS) and capitalist countries separately, several conclusions emerge: i) small and medium enterprises are the main competitiveness generator in the PS block (in contrast to large corporations in the capitalist economies), ii) credit rating is highly relevant in both groups, iii) increasing labour market flexibility in PS countries plays a vital role in boosting competitiveness.

The Fisher effect at the borders of the European Monetary Union: evidence from post-communist countries

This article aims to shed some light on the Fisher effect in six non-eurozone post-communist economies (the Czech Republic, Hungary, Latvia, Lithuania, Poland and Romania). A Fisher-type interest rate equation is analysed using the PMG panel data estimator, with an early attempt to employ the Harmonised European Consumer Surveys in quantifying inflation expectations and uncertainty. The output gap is also considered as an explanatory variable. The results of the Hausman poolability test unambiguously confirm that, despite the differences in their monetary regimes and the development levels of their financial markets, all the countries observed are homogeneous in terms of the Fisher effect. It is shown that both inflation uncertainty and expectations positively and significantly feed into nominal interest rate fluctuations. The post-communist central banks seem to be the most strongly concerned about inflation uncertainty shocks, while their interest rate elasticity with regard to expected inflation is below unity. On the other hand, they do not significantly adjust their interest rates in response to demand-side pressure, assigning only a secondary role to boosting economic activity. As a robustness check, the results obtained remain rather similar when Sweden and the UK (as the remaining non-eurozone EU members) are included in the sample.