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Determinants of Inflation in a Transition Economy by Mr.Bogdan Lissovolik Pdf
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.
The Nonmonetary Determinants of Inflation by Mr.Carlo Cottarelli Pdf
This paper explains inflation performance in a sample of industrial and transition economies by looking at policymakers’ incentives to inflate the economy, and the perceived costs of disinflation. It finds a significant effect of fiscal deficits on inflation, particularly (but not exclusively) in countries where the government securities market is not well developed. Other factors with significant effect on inflation include relative price changes, central bank independence, the exchange rate regime, and the degree of price liberalization; there is only limited evidence that other structural factors, such as those influencing the natural rate of unemployment, have a significant effect on inflation.
Stabilization and Growth in Transition Economies by Mr.Stanley Fischer,Ms.Ratna Sahay,Mr.Carlos A. Végh Gramont Pdf
This paper analyzes the growth and stabilization experience in 26 transition economies in eastern Europe, the former Soviet Union, and Mongolia for the period 1989-1994. Inflation rates have declined significantly in most countries following an inflation stabilization program. Growth resumes after stabilization occurs, typically with a lag of about two years. Reducing inflation thus appears to be a precondition for growth. An econometric analysis of the short-run determinants of inflation and growth illustrates the key roles of fixed exchange rates, improved fiscal balances, and structural reforms in spurring growth and lowering inflation, and confirms that inflation stabilization programs have been beneficial for growth even after controlling for structural reforms.
Disinflation in Transition Economies by Ms.Sharmini Coorey,Mr.Mauro Mecagni,Mr.Erik Offerdal Pdf
In light of the persistence of moderate inflation in many transition economies, this paper analyzes whether inflation resulted from insufficiently tight financial policies and wage pressures or from the protracted adjustment of relative prices. Using a new database for 21 countries, the effect of relative price variability on inflation is estimated within a framework controlling for nominal and real shocks. Money and wage growth were the most important determinants of inflation; relative price variability had a sizable effect at high inflation during initial liberalization and a small effect at moderate inflation. Cost recovery may contribute to variability, particularly in the advanced stages of the transition.
Moderate Inflation by Mr.Carlo Cottarelli,Mr.Gyorgy Szapary Pdf
Many countries, including several transition economies, have in the last few years recorded a sharp decline in inflation, but have been unable to bring inflation down to lower single digits or to achieve price stability. In these countries, inflation has stabilized at moderate levels, with further progress becoming seemingly more difficult. What are the problems created by moderate inflation? What is the appropriate speed of disinflation? These and other issues related to disinflation in transition economies are taken up in this book, edited by Carlo Cottarelli and Gyorgy Szapáry.
Disinflation in Transition Economies by Sharmini Coorey Pdf
In light of the persistence of moderate inflation in many transition economies, this paper analyzes whether inflation resulted from insufficiently tight financial policies and wage pressures or from the protracted adjustment of relative prices. Using a new database for 21 countries, the effect of relative price variability on inflation is estimated within a framework controlling for nominal and real shocks. Money and wage growth were the most important determinants of inflation; relative price variability had a sizable effect at high inflation during initial liberalization and a small effect at moderate inflation. Cost recovery may contribute to variability, particularly in the advanced stages of the transition.
The Main Determinants of Inflation in Albania by Ilker Domaç,Carlos Elbirt Pdf
June 1998 This study of inflation in Albania yields several conclusions: * Fighting inflation and keeping exports competitive requires cuts in the budget deficit and credit to government. * The strong seasonal inflation can be somewhat ameliorated by improving infrastructure and customs services. * Structural reforms and improved infrastructure should be part of all stabilization programs, because growth reduces inflation. Domac and Elbirt investigate the behavior and determinants of inflation in Albania, using three approaches. They * Decompose inflation into four components: seasonal, cyclical, trend, and random. * Rely on the widely used Granger causality test, using disaggregated data on both the consumer price index (CPI) and key economic variables. * Apply cointegration and error-correction techniques to the process of inflation, using a simple theoretical model. Using the first approach, they conclude that inflation exhibits strong seasonal patterns associated with agriculture seasonality. Peaks and troughs of monetary aggregates correspond to those of inflation, with a two-month lag. The exchange rate also exhibits stable seasonality, reaching its trough in August and tending to depreciate early in the year. The Granger causality test shows M1 (currency in circulation plus demand deposits) and the exchange rate to have predictive content for most items of the CPI. The empirical findings also indicate that credit to government is a good predictor of medical care, transportation, and communication prices. But causality also runs from the prices of bread and cereals, recreation, education, and culture to credit to government, since these items, at least during the period under consideration, are subsidized and contribute to the budget deficit. And causality runs from credit to government to the price of nontradables, highlighting the fact that an increase in the fiscal deficit would undermine Albania's competitiveness by producing appreciation in the real exchange rate. The results of cointegration and error-correction techniques confirm that, in the long run, inflation is positively related to both money supply and the exchange rate, and negatively related to real income. A 1-percent increase in M1, for example, will raise inflation by 0.41 percent; a 1-percent depreciation of the exchange rate will increase inflation by 0.17 percent; whereas a 1-percent increase in real income will reduce inflation by 0.25 percent. Inflation adjusts to its equilibrium value fairly rapidly-25 percent a month. The impact of the exchange rate on inflation occurs a month later, while the impact of real income and money take place two and four months later, respectively. The findings support the conventional elements of a typical stabilization program. Fighting inflation and keeping exports competitive requires reducing both the budget deficit and credit to government. The strong seasonal nature of inflation can be somewhat ameliorated by improving infrastructure and customs services. Structural reforms and improvements in infrastructure should be part of any stabilization program because economic growth is an antidote to inflation. This paper-a joint product of the Albania/Croatia Country Unit, Europe and Central Asia Region, and the Poverty Reduction and Economic Management Sector Unit, East Asia and Pacific Region-is part of a larger effort in the Bank to enhance the knowledge on the inflationary process and its practical implications. The authors may be contacted at [email protected] or [email protected].
Inflation and Stabilization in Transition Economies by Ms.Ratna Sahay,Mr.Carlos A. Végh Gramont Pdf
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.
The paper explores the pattern of transition of the Vietnamese economy, the policies that were applied, and the reasons for the country's success. In particular, it focuses on output performance; state-owned enterprises; foreign direct investment; determinants of inflation; dollarization and problems of economic management; international integration and exchange rate policy; growth and diversification of trade, trade reform, exchange reform, and exchange rate policy.
Stabilization and Growth in Transition Economies by Ratna Sahay Pdf
This paper analyzes the growth and stabilization experience in 26 transition economies in eastern Europe, the former Soviet Union, and Mongolia for the period 1989-1994. Inflation rates have declined significantly in most countries following an inflation stabilization program. Growth resumes after stabilization occurs, typically with a lag of about two years. Reducing inflation thus appears to be a precondition for growth. An econometric analysis of the short-run determinants of inflation and growth illustrates the key roles of fixed exchange rates, improved fiscal balances, and structural reforms in spurring growth and lowering inflation, and confirms that inflation stabilization programs have been beneficial for growth even after controlling for structural reforms.
Inflation in Emerging and Developing Economies by Jongrim Ha,M. Ayhan Kose,Franziska Ohnsorge Pdf
This is the first comprehensive study in the context of EMDEs that covers, in one consistent framework, the evolution and global and domestic drivers of inflation, the role of expectations, exchange rate pass-through and policy implications. In addition, the report analyzes inflation and monetary policy related challenges in LICs. The report documents three major findings: In First, EMDE disinflation over the past four decades was to a significant degree a result of favorable external developments, pointing to the risk of rising EMDE inflation if global inflation were to increase. In particular, the decline in EMDE inflation has been supported by broad-based global disinflation amid rapid international trade and financial integration and the disruption caused by the global financial crisis. While domestic factors continue to be the main drivers of short-term movements in EMDE inflation, the role of global factors has risen by one-half between the 1970s and the 2000s. On average, global shocks, especially oil price swings and global demand shocks have accounted for more than one-quarter of domestic inflation variatio--and more in countries with stronger global linkages and greater reliance on commodity imports. In LICs, global food and energy price shocks accounted for another 12 percent of core inflation variatio--half more than in advanced economies and one-fifth more than in non-LIC EMDEs. Second, inflation expectations continue to be less well-anchored in EMDEs than in advanced economies, although a move to inflation targeting and better fiscal frameworks has helped strengthen monetary policy credibility. Lower monetary policy credibility and exchange rate flexibility have also been associated with higher pass-through of exchange rate shocks into domestic inflation in the event of global shocks, which have accounted for half of EMDE exchange rate variation. Third, in part because of poorly anchored inflation expectations, the transmission of global commodity price shocks to domestic LIC inflation (combined with unintended consequences of other government policies) can have material implications for poverty: the global food price spikes in 2010-11 tipped roughly 8 million people into poverty.
Inflation Expectations by Peter J. N. Sinclair Pdf
Inflation is regarded by the many as a menace that damages business and can only make life worse for households. Keeping it low depends critically on ensuring that firms and workers expect it to be low. So expectations of inflation are a key influence on national economic welfare. This collection pulls together a galaxy of world experts (including Roy Batchelor, Richard Curtin and Staffan Linden) on inflation expectations to debate different aspects of the issues involved. The main focus of the volume is on likely inflation developments. A number of factors have led practitioners and academic observers of monetary policy to place increasing emphasis recently on inflation expectations. One is the spread of inflation targeting, invented in New Zealand over 15 years ago, but now encompassing many important economies including Brazil, Canada, Israel and Great Britain. Even more significantly, the European Central Bank, the Bank of Japan and the United States Federal Bank are the leading members of another group of monetary institutions all considering or implementing moves in the same direction. A second is the large reduction in actual inflation that has been observed in most countries over the past decade or so. These considerations underscore the critical – and largely underrecognized - importance of inflation expectations. They emphasize the importance of the issues, and the great need for a volume that offers a clear, systematic treatment of them. This book, under the steely editorship of Peter Sinclair, should prove very important for policy makers and monetary economists alike.
Post Stabilization Inflation Dynamics in Slovenia by Mr.Kevin Ross Pdf
This paper investigates the inflation process in Slovenia through an examination of some commonly used determinants of inflation in transition economies. Granger causality tests and an analysis of unrestricted VAR models suggest a strong linkage between both growth in broader monetary aggregates and changes in the tolar–deutsche mark exchange rate on retail price inflation. While the growth in wages affects inflation, it appears that both changes in the exchange rate and growth in monetary aggregates provide the initial impulse. A discussion of the present money–exchange rate policy framework and its influence on inflation is also provided.
The Scope for Inflation Targeting in Developing Countries by Mr.Paul R. Masson,Mr.Miguel A. Savastano,Mr.Sunil Sharma Pdf
Inflation targeting (IT) serves as monetary policy framework in several advanced economies, where it has enhanced policy transparency and accountability. The paper considers its wider applicability to developing countries. The prerequisites for a successful IT framework are identified as an ability to carry out an independent monetary policy (free of fiscal dominance or commitment to another nominal anchor, like the exchange rate) and a quantitative framework linking policy instruments to inflation. These prerequisites are largely absent among developing countries, though several of them could with some further institutional changes and an overriding commitment to low inflation make use of an IT framework.
