Moderate Inflation in Poland: A Real Story
June 1, 1996
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Summary
Why is moving from moderate to low inflation almost always slow or costly? This paper answers this question, based on the Polish experience. First, reflecting the transition to a market economy, Polish inflation has been marked by significant changes in relative prices. Second, as wage and price indexation takes root, the inflationary effect of shocks to relative prices is magnified. Third, lagging structural reform, including the failure to extend hard budget constraints to all sectors of the economy, makes monetary policy less effective. Reduced money supply growth with structural reform offers the best prospect for moving to low inflation.
Subject: Consumer price indexes, Exchange rates, Foreign exchange, Inflation, Monetary policy, Monetary tightening, Price adjustments, Prices
Keywords: broad money, consumer price, Consumer price indexes, cost of living index, Eastern Europe, exchange rate, Exchange rates, Inflation, inflation rate, loss-making firm, marginal product of labor, monetary policy, Monetary tightening, Price adjustments, price level, restructuring process, utility company, WP
Pages:
44
Volume:
1996
DOI:
Issue:
057
Series:
Working Paper No. 1996/057
Stock No:
WPIEA0571996
ISBN:
9781451967432
ISSN:
1018-5941
