SOURCES OF INFLATION IN TRANSITION ECONOMY: THE CASE OF CROATIA

The aim of this paper is to study the inflation generation process in Croatia. Following the estimation strategies of Dibooglu and Kutan (2005.) we estimate a small open economy model, using SVAR estimation approach. The results of the estimated model imply that the inflation in Croatia is strongly related to the terms of trade and balance of payment shocks. We contrast these results to the re-estimated unrestricted VAR model, following the Payne (2002.) estimation strategy. The results of the latter also confirm that monetary shocks have relatively small influence on the inflation generation process in Croatia.