Panel estimating effects of macroeconomic determinants on inflation: Evidence of Western Balkan

This study analyzes the relationship between macroeconomic variables that influence inflation. Through our research, we will analyze the influence of GDP growth, remittances, level of exports, level of imports, and foreign direct investments on the inflation rate for the Western Balkan. The research has applied panel data using dynamic approaches such as fixed effects, and Arellano-Bover/Blundell-Bond estimation to determine relationships between variables and their impact on inflation. The research used annual series data from 2003 to 2019 provided by the World Bank and the International Monetary Fund. Likewise, to test a stationary of data was applied three estimations for the unit root test and Johansen cointegration. The research results reveal that in the short run, all variables influence the inflation rate, except for foreign direct investment, which has insignificant influence. Moreover, the analyses through the Arellano-Bover/Blundell-Bond estimation reveal that GDP growth, imports, and foreign direct investments have a positive influence on the inflation rate, while, working remittances and exports have a negative influence on the inflation rate. These conclusions provide sufficient information for future debates and examination on macroeconomic variables that potentially affect inflation.