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What Explains Persistent Inflation Differentials Across Transition Economies?

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Author Info
Felix Hammermann
Mark Flanagan
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 Kiel Institute for the World Economy in its series Kiel Working Papers with number 1373.

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Length: 33 pages
Date of creation: Aug 2007
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Handle: RePEc:kie:kieliw:1373

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Related research
Keywords: inflation; transition economies; panel data;

Find related papers by JEL classification:
E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
P24 - Economic Systems - - Socialist Systems and Transition Economies - - - National Income, Product, and Expenditure; Money; Inflation

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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. 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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