Determinants of Inflation in a Transition Economy: The Case of Ukraine

Bogdan Lissovolik

No 2003/126, IMF Working Papers from International Monetary Fund

Abstract: This paper examines determinants of inflation in Ukraine during 1993-2002 in a cointegrating framework. Two basic theoretical models-a markup and a money market model-are tested. While broad money is cointegrated with the CPI for the whole sample and for early subsamples, the cointegration ceases to be statistically significant between 1996-2002, in part because of strong remonetization. The mark-up model offers a more consistent and well-fitting overall framework for 1996-2002 data, pointing inter alia to a greater role of administered prices in the CPI within a fairly mainstream inflation process. The "long-term" monetary transmission mechanism operates through the exchange rate and wages, but broad money clearly enters short-term inflation determinants. Prudent macroeconomic policies, grain harvests, and administrative decisions explain the sharp decline of inflation over 2000-2002.

Keywords: WP; money demand; broad money; output gap; services price; Inflation; transition; Ukraine; cointegration; stabilization effort; inflation inertia term; exante inflation projection; food price deflation; inflation process; inflation equation; inflation development; world inflation; transition inflation study; price determination; single-equation model; Exchange rates; Consumer price indexes; Monetary base; Demand for money; Central and Eastern Europe; Eastern Europe; Asia and Pacific; Baltics (search for similar items in EconPapers)
Pages: 36
Date: 2003-06-01
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Citations: View citations in EconPapers (16)

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