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What Explains Persistent Inflation Differentials Across Transition Economies?

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  • Mark J Flanagan
  • Felix Hammermann

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.

Suggested Citation

  • Mark J Flanagan & Felix Hammermann, 2007. "What Explains Persistent Inflation Differentials Across Transition Economies?," IMF Working Papers 07/189, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:07/189
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    Cited by:

    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.
    2. Siklos, Pierre L., 2010. "Meeting Maastricht: Nominal convergence of the new member states toward EMU," Economic Modelling, Elsevier, vol. 27(2), pages 507-515, March.
    3. Menji, Sisay, 2008. "Determinants of Recent Inflation in Ethiopia," MPRA Paper 29668, University Library of Munich, Germany.

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    Keywords

    Inflation; Transition economies; panel data; central bank; monetary policy; terms of trade; monetary fund;

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