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Modeling Inflation Dynamics in Transition Economies: The Case of Ukraine

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  • BORISS SILIVERSTOVS
  • OLENA BILAN

Abstract

This paper explores the dynamics of inflation in Ukraine in a period of relative macroeconomic stability. The analysis of the interrelationship among inflation, money growth, wage growth, and devaluation expectations is based on impulse responses and variance decomposition of a vector autoregression model. We find that changes in devaluation expectations appear to be the most important factor driving price development, while money supply growth has negligible impact on inflation. In addition, our results show evidence of a high degree of inflation inertia, which may reflect the specific institutional settings of the Ukrainian economy.

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Article provided by M.E. Sharpe, Inc. in its journal Eastern European Economics.

Volume (Year): 43 (2006)
Issue (Month): 6 (December)
Pages: 66-81

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Handle: RePEc:mes:eaeuec:v:43:y:2006:i:6:p:66-81

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Web page: http://mesharpe.metapress.com/link.asp?target=journal&id=106044

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  1. Josef Brada & Ali Kutan, 1999. "The End of Moderate Inflation in Three Transition Economies?," William Davidson Institute Working Papers Series 230, William Davidson Institute at the University of Michigan.
  2. Ralf Brueggemann & Helmut Leutkepohl, 2000. "Lag Selection in Subset VAR Models with an Application to a U.S. Monetary System," Econometric Society World Congress 2000 Contributed Papers 0821, Econometric Society.
  3. Kevin Ross, 2000. "Post-stabilization inflation dynamics in Slovenia," Applied Economics, Taylor & Francis Journals, vol. 32(2), pages 135-149.
  4. Fischer, Stanley & Sahay, Ratna & Vegh, Carlos, 1996. "Stabilization and growth in transition economies: The early experience," MPRA Paper 20631, University Library of Munich, Germany.
  5. Pozo, Susan & Wheeler, Mark, 1999. "Expectations and the Black Market Premium," Review of International Economics, Wiley Blackwell, vol. 7(2), pages 245-53, May.
  6. Johansen, Soren, 1995. "Likelihood-Based Inference in Cointegrated Vector Autoregressive Models," OUP Catalogue, Oxford University Press, number 9780198774501.
  7. Payne, James E., 2002. "Inflationary dynamics of a transition economy: the Croatian experience," Journal of Policy Modeling, Elsevier, vol. 24(3), pages 219-230, June.
  8. Bogdan Lissovolik, 2003. "Determinants of Inflation in a Transition Economy," IMF Working Papers 03/126, International Monetary Fund.
  9. Himarios, Daniel, 1987. "Devaluation, Devaluation Expectations and Price Dynamics," Economica, London School of Economics and Political Science, vol. 54(215), pages 299-313, August.
  10. Atish R. Ghosh, 1997. "Inflation in Transition Economies," IMF Working Papers 97/80, International Monetary Fund.
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