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The End of Moderate Inflation in Three Transition Economies?

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  • Josef Brada
  • Ali Kutan

Abstract

Although the rate of inflation has declined in the more advanced transition economies such as the Czech Republic, Poland, and Hungary, it continues at moderate rates that are sufficiently high by regional standards to pose economic problems for these countries. In this paper, we examine the reasons for the persistence of this moderate inflation including passive fiscal policies, inappropriate exchange rate policies, and weak mechanisms for the transmission of monetary policy. We also use econometric methods to determine the causes of inflation. The persistence of inflationary expectations and the nominal exchange rate are found to play a much more significant role in the persistence of inflation than do monetary policy and nominal wage growth. These findings suggest that the role of monetary policy in halting inflation is limited at best.

Suggested Citation

  • Josef Brada & Ali Kutan, 1999. "The End of Moderate Inflation in Three Transition Economies?," William Davidson Institute Working Papers Series 230, William Davidson Institute at the University of Michigan.
  • Handle: RePEc:wdi:papers:1999-230
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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. 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.
    3. 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.
    4. repec:onb:oenbwp:y::i:61:b:1 is not listed on IDEAS
    5. Kim, Byung-Yeon & Pirttila, Jukka, 2004. "Money, barter, and inflation in Russia," Journal of Comparative Economics, Elsevier, vol. 32(2), pages 297-314, June.
    6. 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.
    7. 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.
    8. 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.
    9. 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.
    10. 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.
    11. 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.
    12. Mikek, Peter, 2008. "Alternative monetary policies and fiscal regime in new EU members," Economic Systems, Elsevier, vol. 32(4), pages 335-353, December.
    13. 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).
    14. 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.
    15. 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.
    16. 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.
    17. 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.
    18. 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.
    19. 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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    JEL classification:

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

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