Inflation and Stabilization in Transition Economies : A Comparison with Market Economies

Author/Editor:

Carlos A. Végh Gramont ; Ratna Sahay

Publication Date:

January 1, 1995

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:

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.

Series:

Working Paper No. 95/8

Subject:

English

Publication Date:

January 1, 1995

ISBN/ISSN:

9781451842487/1018-5941

Stock No:

WPIEA0081995

Format:

Paper

Pages:

68

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