What Explains Persistent Inflation Differentials Across Transition Economies?

Author/Editor:

Mark J Flanagan ; Felix Hammermann

Publication Date:

July 1, 2007

Electronic Access:

Free Download. Use the free Adobe Acrobat Reader to view this PDF file

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:

Panel estimates based on 19 transition economies suggests that some central banks may aim at comparatively high inflation rates mainly to make up for, and to perhaps exploit, lagging internal and external liberalization in their economies. Out-of-sample forecasts, based on expected developments in the underlying structure of these economies, and assuming no changes in institutions, suggest that incentives may be diminishing, but not to the point where inflation levels below 5 percent could credibly be announced as targets. Greater economic liberalization would help reduce incentives for higher inflation, and enhancements to central bank independence could help shield these central banks from pressures.

Series:

Working Paper No. 2007/189

Subject:

English

Publication Date:

July 1, 2007

ISBN/ISSN:

9781451867534/1018-5941

Stock No:

WPIEA2007189

Pages:

32

Please address any questions about this title to publications@imf.org