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Determinants of Inflation in Poland: A Structural Cointegration Approach

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Author Info
Kim, Byung-Yeon () (BOFIT)

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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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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
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Handle: RePEc:hhs:bofitp:2001_016

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

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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. 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. [Downloadable!] (restricted)
  2. 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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  3. Welfe, Aleksander, 2000. "Modeling inflation in Poland," Economic Modelling, Elsevier, vol. 17(3), pages 375-385, August. [Downloadable!] (restricted)
  4. 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.
  5. Kevin Ross, 1998. "Post Stabilization Inflation Dynamics in Slovenia," IMF Working Papers 98/27, International Monetary Fund.
  6. 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. [Downloadable!]
  7. Mark E. L. Griffiths & Thierry Pujol, 1996. "Moderate Inflation in Poland: A Real Story," IMF Working Papers 96/57, International Monetary Fund.
  8. 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. [Downloadable!] (restricted)
  9. Dibooglu, Selahattin & Kutan, Ali M., 2001. "Sources of Real Exchange Rate Fluctuations in Transition Economies: The Case of Poland and Hungary," Journal of Comparative Economics, Elsevier, vol. 29(2), pages 257-275, June. [Downloadable!] (restricted)
  10. 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.
  11. Marcellino, Massimiliano & Mizon, Grayham E., 2000. "Modelling shifts in the wage-price and unemployment-inflation relationships in Italy, Poland and the UK," Economic Modelling, Elsevier, vol. 17(3), pages 387-413, August. [Downloadable!] (restricted)
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  12. Katarina Juselius, 1991. "Domestic and Foreign Effects on Prices in an Open Economy," Discussion Papers 91-05, University of Copenhagen. Department of Economics.
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Cited by:
(explanations, 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. 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. [Downloadable!] (restricted)
    Other versions:
  2. Ekaterina VOSTROKNUTOVA, 2003. "Shock Therapy? An I (2) Cointegration Analysis of the Russian Stabilization," Economics Working Papers ECO2003/16, European University Institute. [Downloadable!]
  3. 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). [Downloadable!]
    Other versions:
  4. 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. [Downloadable!]
  5. Lena Malesevic-Perovic, 2009. "Cointegration Approach to Analysing Inflation in Croatia," Financial Theory and Practice, Institute of Public Finance, vol. 33(2), pages 201-218. [Downloadable!]
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