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What Explains Persistent Inflation Differentials Across Transition Economies?

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Author Info
Mark J Flanagan
Felix Hammermann
Abstract

Panel estimates based on 19 transition economies suggests that some central banks may aim at comparatively high inflation rates mainly to make up for, and to perhaps exploit, lagging internal and external liberalization in their economies. Out-of-sample forecasts, based on expected developments in the underlying structure of these economies, and assuming no changes in institutions, suggest that incentives may be diminishing, but not to the point where inflation levels below 5 percent could credibly be announced as targets. Greater economic liberalization would help reduce incentives for higher inflation, and enhancements to central bank independence could help shield these central banks from pressures.

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Paper provided by International Monetary Fund in its series IMF Working Papers with number 07/189.

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Length: 32 pages
Date of creation: 31 Jul 2007
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Handle: RePEc:imf:imfwpa:07/189

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Keywords: Working Paper ; Inflation ; Transition economies ;

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  1. Edda Zoli, 2009. "Commodity Price Volatility, Cyclical Fluctuations, and Convergence: What is Ahead for Inflation in Emerging Europe?," IMF Working Papers 09/41, International Monetary Fund. [Downloadable!]
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