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Inflation and Stabilization in Transition Economies; A Comparison with Market Economies

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  • Carlos A. Végh Gramont
  • Ratna Sahay

Abstract

A simple model is developed to understand inflationary pressures and stabilization in nonmarket economies. In light of the model, the paper reviews the inflation and stabilization experiences of several transition economies in Eastern Europe and the former Soviet Union. These experiences are then compared to those of high inflation market economies. The paper concludes that, despite significant differences in the economic structure and institutional framework, the inflation and stabilization experiences in transition and market economies are similar in many respects. In particular, monetary accommodation and lack of fiscal discipline are critical in sustaining inflation, and exchange rate-based anchors seem more successful than money anchors in bringing down inflation. On the other hand, wage policies appear to be more critical in reigning inflation in transition economies than in market economies.

Suggested Citation

  • Carlos A. Végh Gramont & Ratna Sahay, 1995. "Inflation and Stabilization in Transition Economies; A Comparison with Market Economies," IMF Working Papers 95/8, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:95/8
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Max Gillman & Anton Nakov, 2004. "Granger causality of the inflation-growth mirror in accession countries," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 12(4), pages 653-681, December.
    2. Denizer, Cevdet, 1997. "Stabilization, adjustment, and growth prospects in transition economies," Policy Research Working Paper Series 1855, The World Bank.
    3. Carlos A. Végh Gramont & Ratna Sahay, 1995. "Dollarization in Transition Economies; Evidence and Policy Implications," IMF Working Papers 95/96, International Monetary Fund.
    4. Ulrich Thießen, 1996. "Außenwirtschaftliche Aspekte des Transformations- und Entwicklungsprozesses in der Ukraine," Vierteljahrshefte zur Wirtschaftsforschung / Quarterly Journal of Economic Research, DIW Berlin, German Institute for Economic Research, vol. 65(2), pages 219-234.
    5. Buch, Claudia M. & Heinrich, Ralph P. & Langhammer, Rolf J. & Lücke, Matthias & Brücker, Herbert & Engerer, Hella & Schrettl, Wolfram & Schrooten, Mechthild & Weißenburger, Ulrich & Gabrisch, Hubert &, 1995. "Die wirtschaftliche Lage Rußlands: Kurswechsel in der Stabilisierungspolitik. Siebenter Bericht, Teil I," Open Access Publications from Kiel Institute for the World Economy 873, Kiel Institute for the World Economy (IfW).
    6. Ariane Tichit, 1998. "Reprise économique dans les pays post-communistes : application d'un modèle de durée," Économie et Prévision, Programme National Persée, pages 73-92.
    7. van Wijnbergen, Sweder & Budina, Nina, 2001. "Inflation Stabilization, Fiscal Deficits, and Public Debt Management in Poland," Journal of Comparative Economics, Elsevier, vol. 29(2), pages 293-309, June.
    8. Drabek, Zdenek & Brada, Josef C., 1998. "Exchange Rate Regimes and the Stability of Trade Policy in Transition Economies," Journal of Comparative Economics, Elsevier, vol. 26(4), pages 642-668, December.
    9. Samuel GUERINEAU, 1998. "Construction and Assessment of a Mixed Exchange Policy Indicator: Explanation of Polish Inflation," Working Papers 199818, CERDI.
    10. Serhan Cevik & Katerina Teksoz, 2014. "Hitchhiker's guide to inflation in Libya," International Journal of Economic Policy in Emerging Economies, Inderscience Enterprises Ltd, vol. 7(1), pages 1-21.
    11. Cevdet Denizer & Holger C. Wolf, 2000. "The Saving Collapse during the Transition in Eastern Europe," World Bank Economic Review, World Bank Group, vol. 14(3), pages 445-455, September.
    12. Petrovic, Pavle & Vujosevic, Zorica, 2000. "Monetary accommodation in transition economies: econometric evidence from Yugoslavia's high inflation in the 1980s," Journal of Development Economics, Elsevier, vol. 62(2), pages 495-513, August.
    13. 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.
    14. De Melo, Martha & Denizer, Cevdet, 1997. "Monetary policy during transition : an overview," Policy Research Working Paper Series 1706, The World Bank.

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