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The End of Moderate Inflation in Three Transition Economies?

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  • Josef C. Brada
  • Ali M. Kutan

Abstract

This paper examines the moderation of inflation in three transition economies, the Czech Republic, Hungary and Poland at the end of the 1990s. We argue that the institutions for the conduct of monetary policy in these countries were relatively weak and that monetary policy was unsupported by fiscal policy and hampered by multiple objectives. Using a VAR model of inflation, we show that, under a variety of assumptions, foreign prices and the persistence of inflation were the key determinants of inflation in these countries. From this finding we conclude that the moderation of inflation in the Czech Republic, Hungary and Poland was due largely to the decline in import prices from 1997 on, and thus it is likely be a temporary phenomenon.

Suggested Citation

  • Josef C. Brada & Ali M. Kutan, 2002. "The End of Moderate Inflation in Three Transition Economies?," William Davidson Institute Working Papers Series 433, William Davidson Institute at the University of Michigan.
    • Handle: RePEc:wdi:papers:2001-433
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    References listed on IDEAS

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    Citations

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    Cited by:

    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.
    2. Golinelli, Roberto & Rovelli, Riccardo, 2005. "Monetary policy transmission, interest rate rules and inflation targeting in three transition countries," Journal of Banking & Finance, Elsevier, vol. 29(1), pages 183-201, January.
    3. Dibooglu, Sel & Kutan, Ali M., 2005. "Sources of inflation and output movements in Poland and Hungary: Policy implications for accession to the economic and monetary union," Journal of Macroeconomics, Elsevier, vol. 27(1), pages 107-131, March.
    4. Komulainen, Tuomas & Pirttila, Jukka, 2002. "Fiscal Explanations for Inflation: Any Evidence from Transition Economies?," Economic Change and Restructuring, Springer, vol. 35(3), pages 293-316.
    5. Mikek, Peter, 2008. "Alternative monetary policies and fiscal regime in new EU members," Economic Systems, Elsevier, vol. 32(4), pages 335-353, December.
    6. Boriss Siliverstovs & Olena Bilan, 2006. "Modeling Inflation Dynamics in Transition Economies: The Case of Ukraine," Eastern European Economics, Taylor & Francis Journals, vol. 43(6), pages 66-81, December.
    7. Luis A. Gil-Alana & Andrea Mervar & James E. Payne, 2017. "The stationarity of inflation in Croatia: anti-inflation stabilization program and the change in persistence," Economic Change and Restructuring, Springer, vol. 50(1), pages 45-58, February.
    8. Vladimir Filipovski & Taki Fiti & Borce Trenovski, 2016. "Efficiency of the Fiscal Policy and the Fiscal Multipliers – The Case of the Republic of Macedonia," Economic Studies journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 1, pages 3-23.
    9. Dibooglu, Selahattin & Kutan, Ali M., 2001. "Sources of inflation and output fluctuations in Poland and Hungary: Implications for full membership in the European Union," ZEI Working Papers B 16-2001, University of Bonn, ZEI - Center for European Integration Studies.
    10. Aleksandra Hałka & Karol Szafranek, 2016. "Whose Inflation Is It Anyway? Inflation Spillovers Between the Euro Area and Small Open Economies," Eastern European Economics, Taylor & Francis Journals, vol. 54(2), pages 109-132, March.
    11. BIRMAN Andrei, 2012. "A VAR Analysis on the Monetary Policy Transmission Mechanism in Romania," European Journal of Interdisciplinary Studies, Bucharest Economic Academy, issue 01, March.
    12. 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.
    13. repec:zbw:bofitp:2004_005 is not listed on IDEAS
    14. Aleksandra Hałka & Jacek Kotłowski, 2017. "Global or Domestic? Which Shocks Drive Inflation in European Small Open Economies?," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 53(8), pages 1812-1835, August.
    15. repec:zbw:bofitp:2000_013 is not listed on IDEAS
    16. Kim, Byung-Yeon & Pirttila, Jukka, 2004. "Money, barter, and inflation in Russia," Journal of Comparative Economics, Elsevier, vol. 32(2), pages 297-314, June.
    17. repec:onb:oenbwp:y::i:61:b:1 is not listed on IDEAS
    18. 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.
    19. 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 Emerging Economies (BOFIT).
    20. Dibooglu, Selahattin & Kutan, Ali M., 2001. "Sources of Real Exchange Rate Fluctuations in Transition Economies: The Case of Poland and Hungary," Journal of Comparative Economics, Elsevier, vol. 29(2), pages 257-275, June.
    21. Komulainen, Tuomas & Pirttila, Jukka, 2002. "Fiscal Explanations for Inflation: Any Evidence from Transition Economies?," Economic Change and Restructuring, Springer, vol. 35(3), pages 293-316.
    22. repec:zbw:bofitp:2000_011 is not listed on IDEAS
    23. Peter Backé & Jarko Fidrmuc & Thomas Reininger & Franz Schardax, 2002. "Price Dynamics in Central and Eastern European EU Accession," Working Papers 61, Oesterreichische Nationalbank (Austrian Central Bank).
    24. 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.
    25. 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.

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    More about this item

    Keywords

    monetary and fiscal policy; transition economies; moderate inflation and inflation targeting;
    All these keywords.

    JEL classification:

    • P2 - Political Economy and Comparative Economic Systems - - Socialist and Transition Economies
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

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