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Modelling Inflation Dynamics in Transition Economies: The Case of Ukraine

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  • Boriss Siliverstovs
  • Olena Bilan

Abstract

The paper explores dynamics of inflation in Ukraine in the period of relative macroeconomic stability. The analysis of interrelationship between inflation, money growth, wage growth, and a proxy for 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 evidence of high degree of inflation inertia in the economy, which may reflect the specific institutional settings of Ukrainian economy.

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File URL: http://www.diw.de/documents/publikationen/73/diw_01.c.43070.de/dp476.pdf
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Bibliographic Info

Paper provided by DIW Berlin, German Institute for Economic Research in its series Discussion Papers of DIW Berlin with number 476.

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Length: 25 p.
Date of creation: 2005
Date of revision:
Handle: RePEc:diw:diwwpp:dp476

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Keywords: Transition economy; Inflation;

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  1. Brada, Josef C. & Kutan, Ali M., 1999. "The end of moderate inflation in three transition economies?," ZEI Working Papers B 21-1999, ZEI - Center for European Integration Studies, University of Bonn.
  2. Atish R. Ghosh, 1997. "Inflation in Transition Economies," IMF Working Papers 97/80, International Monetary Fund.
  3. S. Fisher & R. Sahay & C. A. Vegh, 1997. "Stabilization and Growth in Transition Economies: The Early Experience," VOPROSY ECONOMIKI, N.P. Redaktsiya zhurnala "Voprosy Economiki", vol. 5.
  4. Himarios, Daniel, 1987. "Devaluation, Devaluation Expectations and Price Dynamics," Economica, London School of Economics and Political Science, vol. 54(215), pages 299-313, August.
  5. Kevin Ross, 2000. "Post-stabilization inflation dynamics in Slovenia," Applied Economics, Taylor & Francis Journals, vol. 32(2), pages 135-149.
  6. 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.
  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. Johansen, Soren, 1995. "Likelihood-Based Inference in Cointegrated Vector Autoregressive Models," OUP Catalogue, Oxford University Press, number 9780198774501, Octomber.
  9. Bogdan Lissovolik, 2003. "Determinants of Inflation in a Transition Economy," IMF Working Papers 03/126, International Monetary Fund.
  10. Pozo, Susan & Wheeler, Mark, 1999. "Expectations and the Black Market Premium," Review of International Economics, Wiley Blackwell, vol. 7(2), pages 245-53, May.
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