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The End of Moderate Inflation in Three Transition Economies?

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Author Info
Josef Brada
Ali Kutan

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Abstract

Although the rate of inflation has declined in the more advanced transition economies such as the Czech Republic, Poland, and Hungary, it continues at moderate rates that are sufficiently high by regional standards to pose economic problems for these countries. In this paper, we examine the reasons for the persistence of this moderate inflation including passive fiscal policies, inappropriate exchange rate policies, and weak mechanisms for the transmission of monetary policy. We also use econometric methods to determine the causes of inflation. The persistence of inflationary expectations and the nominal exchange rate are found to play a much more significant role in the persistence of inflation than do monetary policy and nominal wage growth. These findings suggest that the role of monetary policy in halting inflation is limited at best.

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Paper provided by William Davidson Institute at the University of Michigan Stephen M. Ross Business School in its series William Davidson Institute Working Papers Series with number 230.

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Date of creation: 01 Apr 1999
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Handle: RePEc:wdi:papers:1999-230

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  2. Hafer, R W & Kutan, A M, 1997. "More Evidence on the Money-Output Relationship," Economic Inquiry, Oxford University Press, vol. 35(1), pages 48-58, January.
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  5. Paul R. Masson, 1997. "The Scope for Inflation Targeting in Developing Countries," IMF Working Papers 97/130, International Monetary Fund.
  6. Dornbusch, Rudiger & Fischer, Stanley, 1993. "Moderate Inflation," World Bank Economic Review, Oxford University Press, vol. 7(1), pages 1-44, January.
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  7. Canova, Fabio, 1998. "Detrending and business cycle facts," Journal of Monetary Economics, Elsevier, vol. 41(3), pages 475-512, May. [Downloadable!] (restricted)
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  8. DeJong, D.N. & Whiteman, C.H., 1991. "The Case for Trend-Stationarity is Stronger than we Thought," Working Papers 91-05, University of Iowa, Department of Economics.
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  9. Lucjan T Orlowski, 2005. "Monetary Convergence of the EU Candidates to the Euro: A Theoretical Framework and Policy Implications," Macroeconomics 0501032, EconWPA. [Downloadable!]
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  11. DeJong, David N. & Whiteman, Charles H., 1991. "Reconsidering 'trends and random walks in macroeconomic time series'," Journal of Monetary Economics, Elsevier, vol. 28(2), pages 221-254, October. [Downloadable!] (restricted)
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  15. DeJong, David N. & Nankervis, John C. & Savin, N. E. & Whiteman, Charles H., 1992. "The power problems of unit root test in time series with autoregressive errors," Journal of Econometrics, Elsevier, vol. 53(1-3), pages 323-343. [Downloadable!] (restricted)
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  1. Wachtel, Paul & Korhonen, Iikka, 2004. "Observations on disinflation in transition economies," BOFIT Discussion Papers 5/2004, Bank of Finland, Institute for Economies in Transition. [Downloadable!]
  2. 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)
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  3. Kim, Byung-Yeon, 2001. "Determinants of Inflation in Poland: A Structural Cointegration Approach," BOFIT Discussion Papers 16/2001, Bank of Finland, Institute for Economies in Transition. [Downloadable!]
  4. Ekaterina VOSTROKNUTOVA, 2003. "Shock Therapy? An I (2) Cointegration Analysis of the Russian Stabilization," Economics Working Papers ECO2003/16, European University Institute. [Downloadable!]
  5. Peter Backé & Jarko Fidrmuc & Thomas Reininger & Franz Schardax, 2002. "Price Dynamics in Central and Eastern European EU Accession Countries," Working Papers 61, Oesterreichische Nationalbank (Austrian Central Bank). [Downloadable!]
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  6. Boriss Siliverstovs & Olena Bilan, 2005. "Modelling Inflation Dynamics in Transition Economies: The Case of Ukraine," Discussion Papers of DIW Berlin 476, DIW Berlin, German Institute for Economic Research. [Downloadable!]
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  7. Komulainen, Tuomas & Pirttilä, Jukka, 2000. "Fiscal Explanations for Inflation: Any Evidence from Transition Economies?," BOFIT Discussion Papers 11/2000, Bank of Finland, Institute for Economies in Transition. [Downloadable!]
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  8. Dvorsky, Sandra, 2000. "Measuring Central Bank Independence in Selected Transition Countries and the Disinflation Process," BOFIT Discussion Papers 13/2000, Bank of Finland, Institute for Economies in Transition. [Downloadable!]
  9. 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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