BOFIT Discussion Papers, Institute for Economies in Transition, Bank of Finland
No 16/2001:
Determinants of Inflation in Poland: A Structural Cointegration Approach
Byung-Yeon Kim ()
Abstract: Using cointegration and error-correction models, this
paper analyses the relative impacts of the monetary, labour and foreign
sectors on Polish inflation from 1990 to 1999. Following the development of
a theoretical framework, we use a structural system approach in which
cointegration relationships are used to derive deviations from steady-state
levels. The deviations are interpreted as excess demand pressure on
inflation in a given sector and subsequently incorporated in order to
determine the short-run dynamics of Polish inflation. The results suggest
that the labour and external sectors dominated the determination of Polish
inflation during the above period, but their effects have been opposite
since 1994. The appreciation of the domestic currency contributed to
reducing inflation, while excessive wage increases prevented inflation from
decreasing to a lower level. The monetary sector appears not to have
exerted influence on inflation, suggesting monetary policy has been
passive.
Keywords: inflation; cointegration; error correction mechanism; Poland; (follow links to similar papers)
40 pages, December 20, 2001
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