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Inflation and Stabilization in Transition Economies

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  • Carlos A. Végh Gramont
  • Ratna Sahay

Abstract

A simple model is developed to understand inflationary pressures and stabilization in nonmarket economies. In light of the model, the paper reviews the inflation and stabilization experiences of several transition economies in Eastern Europe and the former Soviet Union. These experiences are then compared to those of high inflation market economies. The paper concludes that, despite significant differences in the economic structure and institutional framework, the inflation and stabilization experiences in transition and market economies are similar in many respects. In particular, monetary accommodation and lack of fiscal discipline are critical in sustaining inflation, and exchange rate-based anchors seem more successful than money anchors in bringing down inflation. On the other hand, wage policies appear to be more critical in reigning inflation in transition economies than in market economies.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 95/8.

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Length: 68
Date of creation: 01 Jan 1995
Date of revision:
Handle: RePEc:imf:imfwpa:95/8

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Cited by:
  1. Sahay, Ratna & Vegh, Carlos, 1995. "Dollarization in transition economies: Evidence and policy implications," MPRA Paper 20490, University Library of Munich, Germany.
  2. De Melo, Martha & Denizer, Cevdet, 1997. "Monetary policy during transition : an overview," Policy Research Working Paper Series 1706, The World Bank.
  3. Ariane TICHIT MINISCLOUX, 1997. "Reprise économique dans les pays post-communistes: application d'un modèle de durée," Working Papers 199719, CERDI.
  4. Cevdet Denizer & Holger C. Wolf, 2000. "The Saving Collapse during the Transition in Eastern Europe," World Bank Economic Review, World Bank Group, vol. 14(3), pages 445-455, September.
  5. Gillman, Max & Nakov, Anton, 2005. "Granger Causality of the Inflation-Growth Mirror in Accession Countries," CEPR Discussion Papers 4845, C.E.P.R. Discussion Papers.
  6. Sweder van Wijnbergen & Nina Budina, 1999. "Inflation Stabilization, Fiscal Deficits and Public Debt Management in Poland," Tinbergen Institute Discussion Papers 99-022/2, Tinbergen Institute.
  7. Denizer, Cevdet, 1997. "Stabilization, adjustment, and growth prospects in transition economies," Policy Research Working Paper Series 1855, The World Bank.
  8. Buch, Claudia M. & Heinrich, Ralph P. & Langhammer, Rolf J. & Lücke, Matthias & Brücker, Herbert & Engerer, Hella & Schrettl, Wolfram & Schrooten, Mechthild & Weißenburger, Ulrich & Gabrisch, Huber, 1995. "Die wirtschaftliche Lage Rußlands: Kurswechsel in der Stabilisierungspolitik. Siebenter Bericht, Teil I," Kiel Discussion Papers 262, Kiel Institute for the World Economy (IfW).
  9. 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.

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