Econometric Modelling of Inflation in Serbia

This paper examines inflation dynamics in Serbia in 2001-2005 and evaluates size of exchange rate pass-through. Within the cointegration framework it is obtained that price level is determined in the long–run by following three factors: exchange rate, unit labor costs and domestic demand, and these factors also play significant role in explaining short-run movements of inflation. The moderate size of exchange rate pass-through is obtained using different methodological approaches. Findings reported in the paper might be useful in choosing effective monetary and exchange rate stabilization policy in Serbia.

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