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Fiscal Explanations for Inflation: Any Evidence from Transition Economies?

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Author Info
 Komulainen, Tuomas
Pirttila, Jukka

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Abstract

Recent arguments, motivated partly by the new fiscal theory of price level, suggest that fiscal deficits undermine price stability in transition economies. This paper addresses these claims by examining vector-autoregressive models of inflation for three transition economies (Bulgaria, Romania and Russia). The results indicate that fiscal deficits have increased inflation in Bulgaria and Romania but not in the case of Russia. In Bulgaria and Romania, money aggregates and exchange rate have also been more influential to inflation than fiscal deficits. The analysis based on this method therefore suggests that while fiscal deficits have some influence on inflation, monetary factors mostly determine inflation in these three countries. Copyright 2002 by Kluwer Academic Publishers

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Article provided by Springer in its journal Economics of Planning.

Volume (Year): 35 (2002)
Issue (Month): 3 ()
Pages: 293-316
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Handle: RePEc:kap:ecopln:v:35:y:2002:i:3:p:293-316

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Josef C. Brada & Ali M. Kutan, 1999. "The end of moderate inflation in three transition economies?," Working Papers 1999-003, Federal Reserve Bank of St. Louis. [Downloadable!]
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  2. Burnside, Craig & Eichenbaum, Martin & Rebelo, Sergio, 1999. "Prospective deficits and the asian currency crisis," Policy Research Working Paper Series 2174, The World Bank. [Downloadable!]
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  3. Fischer, Stanley & Sahay, Ratna & Vegh, Carlos A, 1996. "Stabilization and Growth in Transition Economies: The Early Experience," Journal of Economic Perspectives, American Economic Association, vol. 10(2), pages 45-66, Spring. [Downloadable!] (restricted)
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  4. Matthew B. Canzoneri & Robert E. Cumby & Behzad T. Diba, 1998. "Is the Price Level Determined by the Needs of Fiscal Solvency?," NBER Working Papers 6471, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  5. John H. Cochrane, 2000. "Money as Stock: Price Level Determination with no Money Demand," NBER Working Papers 7498, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  6. Thomas J. Sargent & Neil Wallace, 1981. "Some unpleasant monetarist arithmetic," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Fall. [Downloadable!]
  7. Wolf, H.C., 1999. "Transition Strategies: Choices and Outcomes," Princeton Studies in International Economics 85, International Economics Section, Departement of Economics Princeton University,.
  8. Willem H. Buiter, 1999. "The Fallacy of the Fiscal Theory of the Price Level," NBER Working Papers 7302, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  9. Blanchard, Olivier Jean & Quah, Danny, 1989. "The Dynamic Effects of Aggregate Demand and Supply Disturbances," American Economic Review, American Economic Association, vol. 79(4), pages 655-73, September. [Downloadable!] (restricted)
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  10. Canzoneri, Matthew B & Cumby, Robert E & Diba, Behzad T, 2001. "Fiscal Discipline and Exchange Rate Systems," Economic Journal, Royal Economic Society, vol. 111(474), pages 667-90, October. [Downloadable!] (restricted)
  11. Woodford, Michael, 1994. "Monetary Policy and Price Level Determinacy in a Cash-in-Advance Economy," Economic Theory, Springer, vol. 4(3), pages 345-80.
  12. Donal McGettigan, 2000. "Current Account and External Sustainability in the Baltics, Russia, and Other Countries of the Former Soviet Union," IMF Occasional Papers 189, International Monetary Fund.
  13. de Melo, Martha & Denizer, Cevdet & Gelb, Alan, 1996. "From plan to market : patterns of transition," Policy Research Working Paper Series 1564, The World Bank. [Downloadable!]
  14. Carlo Cottarelli, 1998. "The Nonmonetary Determinants of Inflation - A Panel Data Study," IMF Working Papers 98/23, International Monetary Fund.
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  1. Michael Berlemann & Kalina Dimitrova & Nikolay Nenovsky, 2000. "Assessing Market Expectations on Exchange Rates and Inflation: A Pilot Forecasting System for Bulgaria," William Davidson Institute Working Papers Series wp759, William Davidson Institute at the University of Michigan Stephen M. Ross Business School. [Downloadable!]
  2. Järvinen, Marketta, 2002. "Exchange rate regimes and nominal convergence in the CEECs," BOFIT Discussion Papers 4/2002, Bank of Finland, Institute for Economies in Transition. [Downloadable!]
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