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Determinants Of Inflation Rate In Transition Economies; Panel Data Analysis

Author

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  • Seymur Agayev

    () (Rize University)

Abstract

Using panel data analysis, this paper examines the determinants of inflation rate in 23 transition economies and in relatively different socio-economical subgroups for the period of 1998-2008. There is a controversy between Monetarists and Keynesians about the causes of inflation. While Monetarists see inflation as outcomes of monetary expansion, Keynesians see monetary expansion as a result and argue that extreme wage increases above productivity cause inflation. Results obtained from fixed, random and common effects estimators support Keynesian view. Namely, while regressions for 23 transition countries and for subgroups show that nominal wage increases strongly affect inflation rate, monetary expansion fail to influence inflation. In addition to wage increases, the results of analysis for all country groups confirm that exchange rate increases also have strong influence on inflation generating. From the finding it is concluded also that inflation inertia is one of key determinant of inflation in Eastern European transition countries, but is not in former Soviet Union transition countries.

Suggested Citation

  • Seymur Agayev, 2012. "Determinants Of Inflation Rate In Transition Economies; Panel Data Analysis," Anadolu University Journal of Social Sciences, Anadolu University, vol. 12(1), pages 59-72, March.
  • Handle: RePEc:and:journl:v:12:y:2012:i:1:p:59-72
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    File URL: http://www.anadolu.edu.tr/arastirma/hakemli_dergiler/sosyal_bilimler/pdf/2012_1/2012-01-05.pdf
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    More about this item

    Keywords

    Transition economies; Inflation determinants; Panel data;

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • O57 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Comparative Studies of Countries

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