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Determinants of Inflation in Poland: A Structural Cointegration Approach

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  • Kim, Byung-Yeon

    ()
    (BOFIT)

Abstract

Using cointegration and error-correction models, this paper analyses the relative impacts of the monetary, labour and foreign sectors on Polish inflation from 1990 to 1999. Following the development of a theoretical framework, we use a structural system approach in which cointegration relationships are used to derive deviations from steady-state levels. The deviations are interpreted as excess demand pressure on inflation in a given sector and subsequently incorporated in order to determine the short-run dynamics of Polish inflation. The results suggest that the labour and external sectors dominated the determination of Polish inflation during the above period, but their effects have been opposite since 1994. The appreciation of the domestic currency contributed to reducing inflation, while excessive wage increases prevented inflation from decreasing to a lower level. The monetary sector appears not to have exerted influence on inflation, suggesting monetary policy has been passive.

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Bibliographic Info

Paper provided by Bank of Finland, Institute for Economies in Transition in its series BOFIT Discussion Papers with number 16/2001.

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Length: 40 pages
Date of creation: 20 Dec 2001
Date of revision:
Handle: RePEc:hhs:bofitp:2001_016

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Keywords: inflation; cointegration; error correction mechanism; Poland;

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References

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  1. Pesaran, M. H. & Shin, Y., 1997. "Generalised Impulse Response Analysis in Linear Multivariate Models," Cambridge Working Papers in Economics 9710, Faculty of Economics, University of Cambridge.
  2. 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.
  3. Marcellino, M. & Mizon, G.E., 1999. "Modelling shifts in the wage-price and unemployment-inflation relationships in Italy, Poland, and the UK," Discussion Paper Series In Economics And Econometrics 9917, Economics Division, School of Social Sciences, University of Southampton.
  4. Kevin Ross, 1998. "Post Stabilization Inflation Dynamics in Slovenia," IMF Working Papers 98/27, International Monetary Fund.
  5. Thierry Pujol & Mark E. L. Griffiths, 1996. "Moderate Inflation in Poland," IMF Working Papers 96/57, International Monetary Fund.
  6. Dibooglu, Selahattin & Kutan, Ali M., 2000. "Sources of real exchange rate fluctuations in transition economies: The case of Ploand and Hungary," ZEI Working Papers B 14-2000, ZEI - Center for European Integration Studies, University of Bonn.
  7. Baffes, John & Elbadawi, Ibrahim A. & O'Connell, Stephen A., 1997. "Single-equation estimation of the equilibrium real exchange rate," Policy Research Working Paper Series 1800, The World Bank.
  8. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
  9. Metin, Kivilcim, 1995. "An Integrated Analysis of Turkish Inflation," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 57(4), pages 513-31, November.
  10. Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
  11. Welfe, Aleksander, 2000. "Modeling inflation in Poland," Economic Modelling, Elsevier, vol. 17(3), pages 375-385, August.
  12. Peter Christoffersen & Torsten Sløk & Robert Wescott, 2001. "Is inflation targeting feasible in Poland?," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 9(1), pages 153-174, March.
  13. Enev, Tihomir & Koford, Kenneth, 2000. " The Effect of Incomes Policies on Inflation in Bulgaria and Poland," Economic Change and Restructuring, Springer, vol. 33(3), pages 141-69.
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Citations

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Cited by:
  1. Ekaterina Vostroknutova, 2003. "Polish Stabilization: What can we learn from the I(2) Cointegration Analysis?," Economic Change and Restructuring, Springer, vol. 36(2), pages 177-198, June.
  2. Koskinen, Juha-Pekka & Koivu, Tuuli & Chowdhury, Abdur, 2004. "Selecting inflation indicators under an inflation targeting regime: evidence from the MCL method," BOFIT Discussion Papers 16/2004, Bank of Finland, Institute for Economies in Transition.
  3. Byung-Yeon Kim & Jukka Pirttilä & Jouko Rautava, 2002. "Money, Barter and Inflation in Russia," Macroeconomics 0209009, EconWPA.
  4. Mosayeb PAHLAVANI & Mohammad RAHIMI, 2009. "Sources of Inflation in Iran: An application of the ARDL Approach," International Journal of Applied Econometrics and Quantitative Studies, Euro-American Association of Economic Development, vol. 9(1).
  5. Jaan Masso & Karsten Staehr, 2005. "Inflation Dynamics And Nominal Adjustment In The Baltic States," University of Tartu - Faculty of Economics and Business Administration Working Paper Series 35, Faculty of Economics and Business Administration, University of Tartu (Estonia).
  6. Martina Alexová, 2012. "Inflation drivers in new EU members," Working and Discussion Papers WP 6/2012, Research Department, National Bank of Slovakia.
  7. Fakhri, Hasanov & Khudayar, Hasanli, 2011. "Why had the Money Market Approach been irrelevant in explaining inflation in Azerbaijan during the rapid economic growth period?," MPRA Paper 29559, University Library of Munich, Germany.

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