Working Paper no. 88: Analysing inflation dynamics in Iceland using a Bayesian structural vector autoregression model

The Central Bank of Iceland has published a research paper which looks at the drivers of inflation variation in Iceland using a Bayesian structural vector autoregression model. The results are that supply shocks and exchange rate shocks are the largest contributors in short run dynamics of inflation while foreign shocks dominate the medium and long run horizons. The results strongly suggest that local currency pricing is largely absent.

More