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

36 Pages Posted: 30 Jan 2006

See all articles by Bogdan Lissovolik

Bogdan Lissovolik

International Monetary Fund (IMF) - European Department

Date Written: June 2003

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: Inflation, transition, Ukraine, cointegration

JEL Classification: E31, C32, P24

Suggested Citation

Lissovolik, Bogdan, Determinants of Inflation in a Transition Economy: The Case of Ukraine (June 2003). IMF Working Paper No. 03/126, Available at SSRN: https://ssrn.com/abstract=879202

Bogdan Lissovolik (Contact Author)

International Monetary Fund (IMF) - European Department

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