Almost all transition countries experienced an initial spike in inflation at the outset of the reform process as price controls were removed. The speed of the subsequent disinflations, however, varied markedly, partly reflecting the different times when countries gained monetary and political independence. Some Central and Eastern European (CEE) countries had managed to reduce inflation to the two-digit range already by the end of 1992, while inflation remained close to or above 1,000 percent in the Baltics, Russia, and other countries of the former Soviet Union (BRO). Subsequently, inflation continued to fall gradually in the Central and Eastern European countries, albeit with some notable exceptions. But it fell sharply in the Baltics, Russia, and other countries of the former Soviet Union, where, by the end of 1997, it exceeded 100 percent only in one country. As a result, median 12-month inflation in the whole transition group fell from 950 percent at the end of 1992 to 11 percent at the end of 1997.

This paper focuses on the experience during 1993­97 of 10 Central and Eastern European countries and the Baltics, Russia, and other countries of the former Soviet Union. It reviews a range of pol-icies implemented in transition economies through the prism of their contribution to disinflation, and factors that were particular to the transition context.¹ The paper is organized as follows. Section II outlines the recent inflation and output record. It notes that inflation peaked at higher rates, the output collapse was more marked, and disinflation came later in the Baltics, Russia, and other countries of the former Soviet Union than in the Central and Eastern European countries. Nevertheless, output began to recover within two years of successful disinflation in both areas. Section III discusses the econometric evidence concerning the links between inflation and output. No general evidence is found that disinflation compounded other factors depressing output, but evidence is found that the moderate and low inflation environment brought about by disinflation stimulated growth. Section IV attempts to identify the factors that facilitated such apparently low-cost disinflation, including the transition context in which disinflation occurred and the role of fiscal policy. Section V discusses the experience of countries that, having successfully reduced high inflation, remained in a moderate inflation range for several years. Section VI summarizes the findings and draws out the implications for the inflation rates that transition countries should target in the years ahead.