Inflation and Stabilization in Transition Economies: A Comparison with Market Economies
IMF Working Papers, January 1, 1995
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- Inflation and Stabilization in Transition Economies: A Comparison with Market Economies
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Bibliographic details
- Authors: Carlos A. Végh Gramont, Ratna Sahay
- Published: January 1, 1995
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451842487.001
Model and scope
- A simple model is developed to understand inflationary pressures and stabilization in nonmarket economies.
- The paper reviews the inflation and stabilization experiences of several transition economies in Eastern Europe and the former Soviet Union and compares these experiences to those of high inflation market economies.
- Subject areas: Inflation, Labor, Monetary base, Monetary policy, Money, Nominal anchors, Prices, Wage policy, Wages.
- Keywords: Baltics, Eastern Europe, enterprise sector, exchange rate, free market, Inflation, Monetary base, money supply, Nominal anchors, price level, price liberalization, transition economy, Wage policy, Wages, WP.
Key findings
- Despite significant differences in economic structure and institutional framework, the inflation and stabilization experiences in transition and market economies are similar in many respects.
- Monetary accommodation and lack of fiscal discipline are critical in sustaining inflation.
- Exchange rate-based anchors seem more successful than money anchors in bringing down inflation.
- Wage policies appear to be more critical in reigning inflation in transition economies than in market economies.
Policy implications and recommendations
- Limit monetary accommodation to avoid sustaining inflationary dynamics.
- Restore and enforce fiscal discipline to reduce fiscal-driven inflation pressures.
- Consider exchange rate-based nominal anchors as a potentially more effective tool than money-based anchors for disinflation efforts.
- In transition economies, give particular attention to wage policy design and implementation as a central component of stabilization programs.
Research and publication notes
- The analysis combines a theoretical model with comparative historical review of transition economies and high-inflation market economies.
- The Working Paper is intended to elicit comments and further debate; views expressed are those of the author(s) and do not necessarily represent those of the IMF or IMF policy.
Inflation and Stabilization in Transition Economies: A Comparison with Market Economies — Carlos A. Végh Gramont, Ratna Sahay, January 1, 1995.