Rethinking Inflation through the Circular Economy: A Markov Switching Analysis of European Countries
DOI:
https://doi.org/10.55845/VJCI3491Keywords:
Inflation, Circular Economy, Markov Switching, European Countries, GMMAbstract
This paper investigates whether the transition to a circular economy reduces or increases the inflation rate.
To address this question, we model the inflation rate using a Markov switching panel data model, analyzing
data from 27 European countries over the period 2010–2019. Our findings provide strong evidence that
advancing toward a circular economy significantly reduces inflation. To support these results, we employ
various circular economy indexes and conduct robustness checks by estimating all models using the
Generalized Method of Moments (GMM). The GMM results confirm the robustness of the relationship
between the circular economy and inflation. These findings carry important policy implications,
demonstrating that transitioning to a circular economy not only preserves resources and protects the
environment but also reduces inflation—a critical consideration for policymakers.
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