## Moderate Inflation in Poland: A Real Story

_IMF Working Papers, June 1, 1996_

## Source details

**Canonical URL:** [Moderate Inflation in Poland: A Real Story](https://www.imf.org/en/publications/wp/issues/2016/12/30/moderate-inflation-in-poland-a-real-story-1942)

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## Bibliographic details
- Authors: Thierry Pujol, Mark E Griffiths
- Published: June 1, 1996
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451967432.001

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### Summary
- The paper examines why moving from moderate to low inflation is almost always slow or costly, using the Polish experience.
- Three principal factors identified:
  - Transition to a market economy produced significant changes in relative prices.
  - Wage and price indexation magnified the inflationary effect of shocks to relative prices.
  - Lagging structural reform, including failure to extend hard budget constraints to all sectors, reduced the effectiveness of monetary policy.
- The paper concludes that reduced money supply growth combined with structural reform offers the best prospect for achieving low inflation.

### Key findings
- Relative price changes during the transition were significant and central to Poland’s inflation experience.
- Indexation mechanisms (wage and price indexation) amplified the inflationary impact of relative price shocks.
- Structural weaknesses—particularly the failure to impose hard budget constraints across sectors—undermined monetary policy transmission and effectiveness.
- Policy sequencing matters: monetary restraint is more likely to succeed in lowering inflation when accompanied by structural reform.

### Policy recommendations
- Implement structural reforms to extend hard budget constraints to all sectors of the economy.
- Pursue reduced money supply growth as part of a coordinated strategy with structural reform to move from moderate to low inflation.
- Address wage and price indexation mechanisms to limit magnification of inflationary shocks from relative price movements.

### Keywords and subjects emphasized
- Consumer price indexes; Exchange rates; Foreign exchange; Inflation; Monetary policy; Monetary tightening; Price adjustments; Prices
- Keywords include: broad money; consumer price; cost of living index; Eastern Europe; exchange rate; inflation rate; loss-making firm; marginal product of labor; monetary policy; restructuring process; utility company.

*Thierry Pujol and Mark E Griffiths, June 1, 1996. IMF Working Paper No. 1996/057.*

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_Source: https://www.imf.org/en/publications/wp/issues/2016/12/30/moderate-inflation-in-poland-a-real-story-1942_