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Discussion by Athanasios Vamvakidis

“The Impact of the USD/EUR Exchange Rate on Inflation in CEE Countries” Jankov, Krznar, Kunovac and Lang. Discussion by Athanasios Vamvakidis For the 13 th Dubrovnik Economic Conference of the National Bank of Croatia. Starting Point: external factors matter for emerging markets.

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Discussion by Athanasios Vamvakidis

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  1. “The Impact of the USD/EUR Exchange Rate on Inflation in CEE Countries”Jankov, Krznar, Kunovac and Lang Discussion by Athanasios Vamvakidis For the 13th Dubrovnik Economic Conference of the National Bank of Croatia

  2. Starting Point: external factors matter for emerging markets • Ahmed and Loungani (1999) • Agenor, McDermott, and Prasad (1999) • Arora and Vamvakidis (2005) • Jankov, Krznar, Kunovac and Lang (JKKL, 2007)

  3. Main results and implications of JKKL • USD/EUR affects inflation in transition economies • Results holds when currency pegged to EUR • Weak $ in 2000-2007 → disinflation; If $ strengthens → inflation • High commodity prices → inflation • Complications for monetary policy in the run-up to the eurozone

  4. Contributions • First study of impact of $ on transition economies • Methodology: VAR, tracing the impact of $ on inflation at each stage along distribution chain • Results for cases of changing the exchange rate regime • Bottom line of paper and main motivation/contribution: global imbalances matter; how they will be resolved matters a great deal for emerging economies

  5. Comments/suggestions • Need to strengthen the motivation, change the title, focus on global imbalances • Focus on all CEE, not primarily on Croatia • Extend the data set to include all transition economies • Discuss more cases of changes in E regime • Other factors that may affect the $ impact in addition to the E regime? • Impact of $ the largest in Croatia; Why? Is the $ weight in CPI (20%) the highest in Croatia? • Simulations: resolving global imbalances; the perfect storm scenario, $ ↑, commodity prices ↑

  6. The world is changing, we like it… or not

  7. CEE (and Croatia) should take advantage of the currently benign conditions of world economy to reform The best time to fix the roof is when the sun is shining

  8. The World is changing • Will $ fall further to reduce the US current account deficit? Will it rise to the historical average afterwards? How long will all this take and what will trigger it? Will the US elections affect the outcome? • CEE have been “lucky” as the weak $ has kept inflation down despite strong domestic demand; this may not continue • Fiscal policy and structural reforms the only way to benefit from benign global conditions and deal with/adjust to external shocks.

  9. Thank you

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