Disinflation in Transition Economies: The Role of Relative Price Adjustment

By Sharmini Coorey, Mauro Mecagni, Erik Offerdal

December 1, 1996

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Sharmini Coorey, Mauro Mecagni, and Erik Offerdal. Disinflation in Transition Economies: The Role of Relative Price Adjustment, (USA: International Monetary Fund, 1996) accessed December 22, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

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.

Subject: Foreign exchange, Inflation, Labor, Monetary base, Money, Price adjustments, Prices, Real exchange rates, Wages

Keywords: Baltics, Broad money, Eastern Europe, Exchange rate, Inflation, Monetary base, Money growth, Nominal exchange rate, Price adjustments, Price liberalization, Price variability, Rate of inflation, Real exchange rates, Transition economy, Wages, WP

Publication Details

Pages:

98
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 1996/138
Stock No:

WPIEA1381996
ISBN:

9781451930061
ISSN:

1018-5941

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