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What Explains Persistent Inflation Differentials Across Transition Economies?

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  • Mark J Flanagan
  • Felix Hammermann
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    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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    Bibliographic Info

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

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    Length: 32
    Date of creation: 01 Jul 2007
    Date of revision:
    Handle: RePEc:imf:imfwpa:07/189

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    Related research

    Keywords: Transition economies; inflation; central bank; monetary policy; terms of trade; monetary fund; inflation rates; money supply; aggregate demand; high inflation; actual inflation; inflation rate; lower inflation; foreign exchange; foreign currency; real value; monetary economics; relative price; financial stability; value of money; price level; inflation process; money demand; monetary aggregates; low inflation; monetary policy instrument; real money; rate of inflation; cost-push inflation; inflation target; average inflation; loose monetary policy; inflation across countries; gold reserves; expectations of inflation; variable inflation; monetary conditions; monetary policy rules; terms of trade shocks; inflation targeting; inflation performance; inflation dynamics; monetary regimes; monetary policy rule; reduction in inflation; inflation stabilization; increase in inflation;

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    References

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    13. David Roodman, 2006. "How to Do xtabond2," North American Stata Users' Group Meetings 2006 8, Stata Users Group.
    14. Carlo Cottarelli, 1998. "The Nonmonetary Determinants of Inflation," IMF Working Papers 98/23, International Monetary Fund.
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    Cited by:
    1. Menji, Sisay, 2008. "Determinants of Recent Inflation in Ethiopia," MPRA Paper 29668, University Library of Munich, Germany.
    2. Edda Zoli, 2009. "Commodity Price Volatility, Cyclical Fluctuations, and Convergence," IMF Working Papers 09/41, International Monetary Fund.
    3. Siklos, Pierre L., 2010. "Meeting Maastricht: Nominal convergence of the new member states toward EMU," Economic Modelling, Elsevier, vol. 27(2), pages 507-515, March.

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