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Determinants of Inflation in a Transition Economy: The Case of Ukraine

  • Bogdan Lissovolik
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    This paper examines determinants of inflation in Ukraine during 1993-2002 in a cointegrating framework. Two basic theoretical models-a markup and a money market model-are tested. While broad money is cointegrated with the CPI for the whole sample and for early subsamples, the cointegration ceases to be statistically significant between 1996-2002, in part because of strong remonetization. The mark-up model offers a more consistent and well-fitting overall framework for 1996-2002 data, pointing inter alia to a greater role of administered prices in the CPI within a fairly mainstream inflation process. The "long-term" monetary transmission mechanism operates through the exchange rate and wages, but broad money clearly enters short-term inflation determinants. Prudent macroeconomic policies, grain harvests, and administrative decisions explain the sharp decline of inflation over 2000-2002.

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    Paper provided by International Monetary Fund in its series IMF Working Papers with number 03/126.

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    Length: 36
    Date of creation: 01 Jun 2003
    Date of revision:
    Handle: RePEc:imf:imfwpa:03/126
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    1. Gunnar Jonsson, 1999. "Inflation, Money Demand, and Purchasing Power Parity in South Africa," IMF Working Papers 99/122, International Monetary Fund.
    2. Gordon de Brouwer & Neil R. Ericsson, 1995. "Modelling Inflation in Australia," RBA Research Discussion Papers rdp9510, Reserve Bank of Australia.
    3. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
    4. Paula De Masi & Vincent Koen, 1997. "Prices in Transition: Ten Stylized Facts," IMF Working Papers 97/158, International Monetary Fund.
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