Kiel Working Papers, Kiel Institute for World Economics
No 1373:
What Explains Persistent Inflation Differentials Across Transition Economies?
Felix Hammermann and Mark Flanagan
Abstract: 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.
Keywords: inflation, transition economies, panel data; (follow links to similar papers)
JEL-Codes: E58,; P24; (follow links to similar papers)
33 pages, August 2007
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