Eurozone Advantage: Central Banks and Inflation Control

Rainer Martin and Piroska Nagy Mohácsi from the London School of Economics studied the Visegrad group's performance during the last inflation spike in 2022.

The four countries - Poland, Hungary, Czechia, and Slovakia - are similar economically, part of the single market, and culturally and politically aligned. However, Slovakia joined the Eurozone in 2009, relying on the ECB for monetary policy, while the other three have their own currency and independent monetary policy.

The research found that despite having control over their monetary policy, inflation was higher in non-Eurozone countries than in Slovakia. Additionally, government deficits and GDP growth trends were similar across the four countries.

The study suggests that being part of the Eurozone has its advantages when it comes to inflation, as the ECB's decisions have a significant impact on all European economies. The researchers argue that open economies in Europe cannot truly have their own monetary policy due to the influence of the ECB's balance sheet and economic gravity.

The results show that during the last inflation spike, inflation expectations were better anchored in the Eurozone and Slovakia than in the other three countries.